HANCOCK WHITNEY CORP - Quarter Report: 2019 March (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 March 31, 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.

85,720,238 common shares were outstanding as of April 30, 2019.

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Hancock Whitney Corporation

Index


Part I. Financial Information		Page Number
ITEM 1.	Financial Statements	4
	Consolidated Balance Sheets (unaudited) – March 31, 2019 and December 31, 2018	4
	Consolidated Statements of Income (unaudited) – Three Months Ended March 31, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income (unaudited) – Three Months Ended March 31, 2019 and 2018	6
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Three Months Ended March 31, 2019 and 2018	7
	Consolidated Statements of Cash Flows (unaudited) – Three Months Ended March 31, 2019 and 2018	8
	Notes to Consolidated Financial Statements (unaudited) – March 31, 2019 and 2018	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	57
ITEM 4.	Controls and Procedures	57
Part II. Other Information
ITEM 1.	Legal Proceedings	59
ITEM 1A.	Risk Factors	59
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
ITEM 3.	Default on Senior Securities	N/A
ITEM 4.	Mine Safety Disclosures	N/A
ITEM 5.	Other Information	N/A
ITEM 6.	Exhibits	59
Signatures		60

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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 has agreed to acquire under an Agreement and Plan of Merger dated April 30, 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

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Part I. Financial Information

Item 1. Financial Statements

Hancock Whitney Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
(in thousands, except per share data)	2019			2018
ASSETS
Cash and due from banks	$	360,194		$	383,372
Interest-bearing bank deposits		163,232			110,579
Federal funds sold		530			515
Securities available for sale, at fair value (amortized cost of $2,698,865 and $2,755,806)		2,681,080			2,691,037
Securities held to maturity (fair value of $2,892,910 and $2,935,856)		2,896,442			2,979,547
Loans held for sale		27,437			28,150
Loans		20,112,838			20,026,411
Less: allowance for loan losses		(194,688	)		(194,514	)
Loans, net		19,918,150			19,831,897
Property and equipment, net of accumulated depreciation of $233,078 and $225,969		358,205			353,668
Right of use assets, net of accumulated amortization of $3,064		113,447			—
Prepaid expenses		39,153			35,047
Other real estate and foreclosed assets, net		27,148			26,270
Accrued interest receivable		94,404			86,681
Goodwill		792,084			790,972
Other intangible assets, net		91,013			96,151
Life insurance contracts		553,893			549,300
Deferred tax asset, net		—			22,967
Funded pension assets, net		168,910			65,125
Other assets		204,909			184,629
Total assets	$	28,490,231		$	28,235,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing	$	8,158,658		$	8,499,027
Interest-bearing		15,221,636			14,651,158
Total deposits		23,380,294			23,150,185
Short-term borrowings		1,388,735			1,589,128
Long-term debt		224,962			224,993
Accrued interest payable		18,031			12,267
Lease liabilities		128,494			—
Deferred tax liability, net		19,065			—
Other liabilities		140,075			177,994
Total liabilities		25,299,656			25,154,567
Stockholders' equity:
Common stock		292,716			292,716
Capital surplus		1,731,148			1,725,741
Retained earnings		1,299,220			1,243,592
Accumulated other comprehensive loss, net		(132,509	)		(180,709	)
Total stockholders' equity		3,190,575			3,081,340
Total liabilities and stockholders' equity	$	28,490,231		$	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		87,903			87,903
Common shares outstanding		85,710			85,643

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended
	March 31,
(in thousands, except per share data)	2019			2018
Interest income:
Loans, including fees	$	238,282		$	205,847
Loans held for sale		253			221
Securities-taxable		31,139			29,301
Securities-tax exempt		5,446			5,537
Short-term investments		1,163			489
Total interest income		276,283			241,395
Interest expense:
Deposits		46,138			26,959
Short-term borrowings		8,082			5,351
Long-term debt		2,809			3,421
Total interest expense		57,029			35,731
Net interest income		219,254			205,664
Provision for loan losses		18,043			12,253
Net interest income after provision for loan losses		201,211			193,411
Noninterest income:
Service charges on deposit accounts		20,367			21,448
Trust fees		15,124			11,335
Bank card and ATM fees		15,290			14,458
Investment and annuity fees and insurance commissions		6,528			6,125
Secondary mortgage market operations		3,726			3,401
Other income		9,468			9,485
Total noninterest income		70,503			66,252
Noninterest expense:
Compensation expense		83,968			80,100
Employee benefits		19,730			19,874
Personnel expense		103,698			99,974
Net occupancy expense		11,984			11,010
Equipment expense		4,679			3,546
Data processing expense		19,331			16,449
Professional services expense		8,168			9,255
Amortization of intangible assets		5,138			5,618
Deposit insurance and regulatory fees		5,406			7,948
Other real estate (income) expense		(991	)		210
Other expense		18,287			16,781
Total noninterest expense		175,700			170,791
Income before income taxes		96,014			88,872
Income taxes		16,850			16,397
Net income	$	79,164		$	72,475
Earnings per common share-basic	$	0.91		$	0.83
Earnings per common share-diluted	$	0.91		$	0.83
Dividends paid per share	$	0.27		$	0.24
Weighted average shares outstanding-basic		85,688			85,241
Weighted average shares outstanding-diluted		85,800			85,423

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
	March 31,
(in thousands)	2019		2018
Net income	$	79,164	$	72,475
Other comprehensive income/loss before income taxes:
Net change in unrealized gain/loss on securities available for sale and cash flow hedges		57,243		(62,244	)
Reclassification of net losses realized and included in earnings		4,219		1,796
Amortization of unrealized net loss on securities transferred to held to maturity		591		755
Other comprehensive income/loss before income taxes		62,053		(59,693	)
Income tax expense (benefit)		13,853		(13,546	)
Other comprehensive income/loss net of income taxes		48,200		(46,147	)
Comprehensive income	$	127,364	$	26,328

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

										Accumulated
	Common Stock									Other
(in thousands, except per share data)	Shares Issued		Amount		Capital Surplus		Retained Earnings			Comprehensive Loss, Net			Total
Balance, December 31, 2017		87,903	$	292,716	$	1,718,117	$	1,008,518		$	(134,402	)	$	2,884,949
Net income		—		—		—		72,475			—			72,475
Other comprehensive loss		—		—		—		—			(46,147	)		(46,147	)
Comprehensive income		—		—		—		72,475			(46,147	)		26,328
Cash dividends declared ($0.24 per common share)		—		—		—		(20,881	)		—			(20,881	)
Common stock activity, long-term incentive plan		—		—		4,735		70			—			4,805
Issuance of stock from dividend reinvestment and stock purchase plans		—		—		837		—			—			837
Balance, March 31, 2018		87,903	$	292,716	$	1,723,689	$	1,060,182		$	(180,549	)	$	2,896,038

Balance, December 31, 2018		87,903	$	292,716	$	1,725,741	$	1,243,592		$	(180,709	)	$	3,081,340
Net income		—		—		—		79,164			—			79,164
Other comprehensive income		—		—		—		—			48,200			48,200
Comprehensive income		—		—		—		79,164			48,200			127,364
Cash dividends declared ($0.27 per common share)		—		—		—		(23,581	)		—			(23,581	)
Common stock activity, long-term incentive plan		—		—		4,528		45			—			4,573
Issuance of stock from dividend reinvestment and stock purchase plans		—		—		879		—			—			879
Balance, March 31, 2019		87,903	$	292,716	$	1,731,148	$	1,299,220		$	(132,509	)	$	3,190,575

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 31,
(in thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	79,164		$	72,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,516			6,551
Provision for loan losses		18,043			12,253
(Gain) loss on other real estate owned		(991	)		210
Deferred tax expense		30,829			14,790
Increase in cash surrender value of life insurance contracts		(3,772	)		(3,346	)
Loss on sale of business		—			1,145
Net decrease in loans held for sale		5,714			18,172
Net amortization of securities premium/discount		7,009			8,453
Amortization of intangible assets		5,138			5,618
Stock-based compensation expense		5,181			4,883
Contribution to pension plan		(100,000	)		—
Decrease in interest payable and other liabilities		(15,478	)		(32,568	)
Decrease in payable to FDIC for loan servicing		—			(11,107	)
(Increase) decrease in other assets		(23,335	)		6,821
Other, net		(1,595	)		144
Net cash provided by operating activities		13,423			104,494
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale		55,596			80,155
Purchases of securities available for sale		(1,502	)		(142,052	)
Proceeds from maturities of securities held to maturity		79,533			93,408
Purchases of securities held to maturity		—			(134,020	)
Net (increase) decrease in short-term investments		(52,668	)		30,843
Proceeds from sales of loans and leases		42,059			12,211
Net increase in loans		(148,073	)		(196,328	)
Purchases of property and equipment		(12,435	)		(7,904	)
Proceeds from sales of property and equipment		115			42
Proceeds from sales of other real estate		4,613			1,641
Final cash settlement for acquisition of business		(1,112	)		—
Proceeds from the sale of business, net of cash sold		—			77,081
Other, net		(8,978	)		(8,915	)
Net cash used in investing activities		(42,852	)		(193,838	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		230,109			232,638
Net decrease in short-term borrowings		(200,393	)		(251,793	)
Repayments of long-term debt		(75	)		(5,268	)
Net proceeds from issuance of long-term debt		—			83
Dividends paid		(23,581	)		(20,881	)
Payroll tax remitted on net share settlement of equity awards		(688	)		(142	)
Proceeds from exercise of stock options		—			782
Proceeds from dividend reinvestment and stock purchase plans		879			837
Net cash provided by (used in) financing activities		6,251			(43,744	)
NET DECREASE IN CASH AND DUE FROM BANKS		(23,178	)		(133,088	)
CASH AND DUE FROM BANKS, BEGINNING		383,372			386,948
CASH AND DUE FROM BANKS, ENDING	$	360,194		$	253,860
SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans	$	4,273		$	1,305

See notes to unaudited consolidated financial statements.

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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 three months ended March 31, 2019.

2. Acquisition

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.

(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. Goodwill represents the 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

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markets, and expected earnings streams and operational efficiencies that the Company believes will result from this business combination. The tax basis of the goodwill is deductible for federal income tax purposes.

The following table presents the change in the Company’s goodwill during the year ended December 31, 2018 and the three months ended March 31, 2019.

(in thousands)
Goodwill balance at December 31, 2017	$	745,523
Intital 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
Goodwill balance at March 31, 2019	$	792,084

The acquired trust and asset management business added $4.9 million in trust fee revenue and $4.8 million of expense to the Company’s results of operations for the three months ended March 31, 2019. The results are not material to the Company’s results of operations and, as such, supplemental proforma financial information for the three months ended March 31, 2018 is not presented. During the three months ended March 31, 2018, the Company incurred acquisition related costs of approximately $0.3 million.

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 March 31, 2019 and December 31, 2018 follow.

Securities Available for Sale
(in thousands)	March 31, 2019								December 31, 2018
			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	$	73,426		—		1,283	$	72,143	$	74,339	$	—	$	2,633	$	71,706
Municipal obligations		245,707		1,833		1,600		245,940		246,713		360		6,646		240,427
Residential mortgage-backed securities		1,418,881		9,964		15,813		1,413,032		1,468,912		4,284		29,794		1,443,402
Commercial mortgage-backed securities		798,447		4,594		15,207		787,834		799,060		1,953		30,936		770,077
Collateralized mortgage obligations		158,904		1,212		1,485		158,631		163,282		903		2,260		161,925
Corporate debt securities		3,500		—		—		3,500		3,500		—		—		3,500
	$	2,698,865	$	17,603	$	35,388	$	2,681,080	$	2,755,806	$	7,500	$	72,269	$	2,691,037

	March 31, 2019								December 31, 2018
			Gross		Gross						Gross
Securities Held to Maturity	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury and government agency securities	$	50,000		—		317	$	49,683	$	50,000	$	—	$	478	$	49,522
Municipal obligations		676,651		11,247		1,726		686,172		688,201		2,347		9,503		681,045
Residential mortgage-backed securities		613,964		3,701		3,148		614,517		640,393		1,461		6,117		635,737
Commercial mortgage-backed securities		356,919		1,233		3,780		354,372		357,175		376		10,882		346,669
Collateralized mortgage obligations		1,198,908		3,285		14,027		1,188,166		1,243,778		1,598		22,493		1,222,883
	$	2,896,442	$	19,466	$	22,998	$	2,892,910	$	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 March 31, 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	$	368	$	374
Due after one year through five years		107,225		108,866
Due after five years through ten years		1,184,905		1,175,070
Due after ten years		1,406,367		1,396,770
Total available for sale debt securities	$	2,698,865	$	2,681,080

Debt Securities Held to Maturity	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	80,915	$	80,716
Due after one year through five years		67,617		67,418
Due after five years through ten years		1,392,654		1,398,880
Due after ten years		1,355,256		1,345,896
Total held to maturity securities	$	2,896,442	$	2,892,910

The Company held no securities classified as trading at March 31, 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.

Available for Sale
March 31, 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	$	-		-		72,143		1,283	$	72,143	$	1,283
Municipal obligations		2,270		40		106,042		1,560		108,312		1,600
Residential mortgage-backed securities		640		6		852,716		15,807		853,356		15,813
Commercial mortgage-backed securities		-		-		583,978		15,207		583,978		15,207
Collateralized mortgage obligations		-		-		108,798		1,485		108,798		1,485
	$	2,910	$	46	$	1,723,677	$	35,342	$	1,726,587	$	35,388

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.

Held to Maturity
March 31, 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	$	—		—	$	49,682	$	317	$	49,682	$	317
Municipal obligations		8,750		63		169,931		1,663		178,681		1,726
Residential mortgage-backed securities		—		—		186,221		3,148		186,221		3,148
Commercial mortgage-backed securities		—		—		312,296		3,780		312,296		3,780
Collateralized mortgage obligations		—		—		860,183		14,027		860,183		14,027
	$	8,750	$	63	$	1,578,313	$	22,935	$	1,587,063	$	22,998
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 March 31, 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.

There were no sales of securities during the three months ended March 31, 2019 and 2018.

Securities with carrying values totaling $3.7 billion and $3.4 billion at March 31, 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, south Louisiana, the Houston, Texas area, the northern, central, and panhandle regions of Florida, and Nashville, Tennessee. Loans, net of unearned income, by portfolio are presented in the table below.

	March 31,		December 31,
(in thousands)	2019		2018
Commercial non-real estate	$	8,656,326	$	8,620,601
Commercial real estate - owner occupied		2,515,428		2,457,748
Total commercial and industrial		11,171,754		11,078,349
Commercial real estate - income producing		2,563,394		2,341,779
Construction and land development		1,340,067		1,548,335
Residential mortgages		2,933,251		2,910,081
Consumer		2,104,372		2,147,867
Total loans	$	20,112,838	$	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 three months ended March 31, 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
	Three Months Ended March 31, 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		(16,344	)		—		(16,344	)		(10	)		—			(406	)		(4,231	)		(20,991	)
Recoveries		1,926			17		1,943			2			11			162			1,004			3,122
Net provision for loan losses		14,186			33		14,219			3,173			(1,631	)		(3	)		2,285			18,043
Ending balance	$	97,520		$	13,807	$	111,327		$	20,803		$	14,027		$	23,535		$	24,996		$	194,688
Ending balance:
Allowance:
Individually evaluated for impairment	$	1,775		$	205	$	1,980		$	143		$	1		$	219		$	347		$	2,690
Amounts related to purchased credit impaired loans		288			185		473			35			78			9,162			341			10,089
Collectively evaluated for impairment		95,457			13,417		108,874			20,625			13,948			14,154			24,308			181,909
Total allowance	$	97,520		$	13,807	$	111,327		$	20,803		$	14,027		$	23,535		$	24,996		$	194,688
Loans:
Individually evaluated for impairment	$	231,506		$	16,974	$	248,480		$	2,668		$	19		$	5,397		$	1,508		$	258,072
Purchased credit impaired loans		6,445			5,472		11,917			4,267			2,897			102,199			3,615			124,895
Collectively evaluated for impairment		8,418,375			2,492,982		10,911,357			2,556,459			1,337,151			2,825,655			2,099,249			19,729,871
Total loans	$	8,656,326		$	2,515,428	$	11,171,754		$	2,563,394		$	1,340,067		$	2,933,251		$	2,104,372		$	20,112,838

				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
	Three Months Ended March 31, 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		(9,335	)		(851	)		(10,186	)		—			(10	)		(192	)		(8,048	)		(18,436	)
Recoveries		4,146			88			4,234			63			29			116			1,794			6,236
Net provision for loan losses		3,877			1,421			5,298			(787	)		2,533			150			5,059			12,253
Reduction as a result of sale of subsidiary		—			—			—			—			—			—			(6,648	)		(6,648	)
Ending balance	$	126,606		$	13,620		$	140,226		$	12,985		$	9,924		$	24,918		$	22,660		$	210,713
Ending balance:
Allowance:
Individually evaluated for impairment	$	20,356		$	2,475		$	22,831		$	1,261		$	1		$	276		$	232		$	24,601
Amounts related to purchased credit impaired loans		471			495			966			576			173			11,720			612			14,047
Collectively evaluated for impairment		105,779			10,650			116,429			11,148			9,750			12,922			21,816			172,065
Total allowance	$	126,606		$	13,620		$	140,226		$	12,985		$	9,924		$	24,918		$	22,660		$	210,713
Loans:
Individually evaluated for impairment	$	323,913		$	30,318		$	354,231		$	14,071		$	113		$	8,338		$	617		$	377,370
Purchased credit impaired loans		8,510			8,384			16,894			4,361			5,843			116,409			5,876			149,383
Collectively evaluated for impairment		8,003,799			2,146,841			10,150,640			2,376,430			1,407,922			2,608,074			2,022,685			18,565,751
Total loans	$	8,336,222		$	2,185,543		$	10,521,765		$	2,394,862		$	1,413,878		$	2,732,821		$	2,029,178		$	19,092,504

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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.

	March 31,		December 31,
(in thousands)	2019		2018
Commercial non-real estate	$	126,992	$	110,653
Commercial real estate - owner occupied		14,466		16,895
Total commercial and industrial		141,458		127,548
Commercial real estate - income producing		4,205		4,991
Construction and land development		2,013		2,146
Residential mortgages		39,275		35,866
Consumer		17,880		16,744
Total loans	$	204,831	$	187,295

Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $105.9 million and $85.5 million at March 31, 2019 and December 31, 2018, respectively. Total TDRs, both accruing and nonaccruing, were $223.4 million at March 31, 2019 and $224.6 million at December 31, 2018. All TDRs are individually evaluated for impairment. At March 31, 2019 and December 31, 2018, the Company had unfunded commitments of $8.5 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 months ended March 31, 2019 and 2018:

	Three Months Ended
($ in thousands)	March 31, 2019						March 31, 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		7	$	13,803	$	13,803		13	$	55,482	$	55,482
Commercial real estate - owner occupied		1		167		167		1		5,909		5,909
Total commercial and industrial		8		13,970		13,970		14		61,391		61,391
Commercial real estate - income producing		—		—		—		1		1,564		1,564
Construction and land development		—		—		—		1		43		43
Residential mortgages		5		1,264		1,264		—		—		—
Consumer		2		46		46		1		222		222
Total loans		15	$	15,280	$	15,280		17	$	63,220	$	63,220

The TDRs modified during the three months ended March 31, 2019 reflected in the table above include $0.1 million of loans with extended amortization terms or other payment concessions, $8.8 million with significant covenant waivers and $6.4 million with other modifications. The TDRs modified during the three months ended March 31, 2018 include $48.4 million of loans with extended amortization terms or other payment concessions, $14.6 million with significant covenant waivers and $0.2 million with other modifications.

There were no defaults on loans during the three months ended March 31, 2019 or 2018 that had been modified in a TDR during the prior twelve months.

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The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at March 31, 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.

	March 31, 2019
(in thousands)	Recorded investment without an allowance		Recorded investment with an allowance		Unpaid principal balance		Related allowance
Commercial non-real estate	$	158,767	$	72,739	$	278,392	$	1,775
Commercial real estate - owner occupied		10,442		6,532		20,888		205
Total commercial and industrial		169,209		79,271		299,280		1,980
Commercial real estate - income producing		1,130		1,538		3,403		143
Construction and land development		-		19		20		1
Residential mortgages		3,630		1,767		5,942		219
Consumer		471		1,037		1,753		347
Total loans	$	174,440	$	83,632	$	310,398	$	2,690

	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 months ended March 31, 2019 and 2018. Interest income recognized represents interest on accruing loans modified in a TDR.

	Three Months Ended
	March 31, 2019				March 31, 2018
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial non-real estate	$	235,445	$	1,696	$	295,897	$	1,586
Commercial real estate - owner occupied		19,320		80		25,905		66
Total commercial and industrial		254,765		1,776		321,802		1,652
Commercial real estate - income producing		2,685		7		14,801		25
Construction and land development		70		—		238		—
Residential mortgages		4,637		5		9,489		5
Consumer		1,258		16		955		9
Total loans	$	263,415	$	1,804	$	347,285	$	1,691

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Aging Analysis

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

March 31, 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	$	19,036	$	2,527	$	69,249	$	90,812	$	8,565,514	$	8,656,326	$	13,920
Commercial real estate - owner occupied		4,543		561		16,336		21,440		2,493,988		2,515,428		3,937
Total commercial and industrial		23,579		3,088		85,585		112,252		11,059,502		11,171,754		17,857
Commercial real estate - income producing		6,124		-		5,854		11,978		2,551,416		2,563,394		1,876
Construction and land development		8,328		186		1,757		10,271		1,329,796		1,340,067		721
Residential mortgages		39,534		8,045		19,299		66,878		2,866,373		2,933,251		679
Consumer		15,738		4,120		9,225		29,083		2,075,289		2,104,372		660
Total	$	93,303	$	15,439	$	121,720	$	230,462	$	19,882,376	$	20,112,838	$	21,793

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

Credit Quality Indicators

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

	March 31, 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	$	8,028,706	$	2,342,948	$	10,371,654	$	2,450,517	$	1,319,519	$	14,141,690
Pass-Watch		166,406		91,434		257,840		81,718		9,743		349,301
Special Mention		62,830		16,159		78,989		10,760		890		90,639
Substandard		398,384		64,887		463,271		20,399		9,915		493,585
Doubtful		—		—		—		—		—		—
Total	$	8,656,326	$	2,515,428	$	11,171,754	$	2,563,394	$	1,340,067	$	15,075,215

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	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

	March 31, 2019						December 31, 2018
(in thousands)	Residential mortgage		Consumer		Total		Residential mortgage		Consumer		Total
Performing	$	2,893,635	$	2,085,456	$	4,979,091	$	2,873,669	$	2,130,395	$	5,004,064
Nonperforming		39,616		18,916		58,532		36,412		17,472		53,884
Total	$	2,933,251	$	2,104,372	$	5,037,623	$	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.

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.

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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 three months ended March 31, 2019 and the year ended December 31, 2018.

	March 31, 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
Payments received, net		(8,286	)		(1,100	)		(39,556	)		(5,779	)
Accretion		3,584			(3,584	)		15,749			(15,749	)
Decrease in expected cash flows based on actual cash flows and changes in cash flow assumptions		—			(872	)		—			(3,695	)
Balance at end of period	$	124,894		$	31,738		$	129,596		$	37,294

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $7.3 million and $7.1 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of March 31, 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 $2.2 million and $1.8 million of foreclosed single family residential properties in other real estate owned at March 31, 2019 and December 31, 2018, respectively.

5. Operating Leases

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.

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 consolidated results of operations, and is not expected to in future periods.

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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 March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities for operating leases	$	4,007
Right of use assets obtained in exchange for lease liabilities	$	116,618

	March 31, 2019
Weighted average remaining lease term (in years)		13.12
Weighted average discount rate		3.56	%

The following table sets forth the maturities of the Company’s lease liabilities and the present value discount at March 31, 2019.

(in thousands)
2019	$	12,198
2020		15,421
2021		14,587
2022		14,391
2023		13,109
Thereafter		95,414
Total	$	165,120
Present value discount		(36,626	)
Lease liability	$	128,494

The following table sets forth the components of the Company’s lease expense for the three months ended March 31, 2019.

(in thousands)
Operating lease expense	$	4,253
Short-term lease expense		19
Variable lease expense		12
Sublease income		(116	)
Total	$	4,168

6. Securities Sold under Agreements to Repurchase

Included in short-term borrowings are customer securities sold under agreements to repurchase (“repurchase agreements”) that mature daily and are secured by U.S. agency securities totaling $478.3 million and $428.6 million at March 31, 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.

7. Derivatives

Risk Management Objective of Using Derivatives

The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments, currently related to select pools of variable rate loans and fixed rate brokered deposits. 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

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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 March 31, 2019 and December 31, 2018.

		March 31, 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	Cash Flow	$	975,000	$	9,765		$	4,899		$	875,000	$	3,954		$	9,173
Interest rate swaps	Fair Value		388,110		—			960			483,110		—			2,089
			1,363,110		9,765			5,859			1,358,110		3,954			11,262
Derivatives not designated as hedging instruments:
Interest rate swaps ⁽²⁾	N/A		1,373,378		28,570			30,506			1,277,404		23,670			24,669
Risk participation agreements	N/A		169,317		10			162			171,222		10			131
Forward commitments to sell residential mortgage loans	N/A		82,845		21			607			77,208		110			664
Interest rate-lock commitments on residential mortgage loans	N/A		69,931		493			1			59,119		464			67
Foreign exchange forward contracts	N/A		39,029		482			448			37,749		751			718
Visa Class B derivative contract	N/A		43,753		—			6,953			43,753		—			7,304
			1,778,253		29,576			38,677			1,666,455		25,005			33,553
Total derivatives		$	3,141,363	$	39,341		$	44,536		$	3,024,565	$	28,959		$	44,815
Less: netting adjustment ⁽³⁾					(13,514	)		(26,407	)				(11,979	)		(22,588	)
Total derivative assets/liabilities				$	25,827		$	18,129				$	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 three months ended March 31, 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 $1.4 million and $1.0 million for the three months ended March 31, 2019 and 2018, respectively. The notional amounts of the swap agreements in place at March 31, 2019 expire as follows: $50 million in 2021; $475 million in 2022; $350 million in 2023; and $100 million in 2024.

Fair Value Hedges of Interest Rate Risk

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.

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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 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 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 March 31, 2019 and December 31, 2018 the fair value of the liability associated with this contract was $6.9 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.

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Effect of Derivative Instruments on the Statement of Income

The effects of derivative instruments on the consolidated statements of income for the three months ended March 31, 2019 and 2018 are presented in the table below. For the three months ended March 31, 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
		March 31,
Derivative Instruments:	Location of Gain (Loss) Recognized in the Statement of Income:	2019			2018
Interest rate swaps - cash flow hedges	Interest income	$	(2,016	)	$	(618	)
Interest rate swaps - fair value hedges	Interest expense		(988	)		(126	)
All other instruments	Other noninterest income		809			1,523
Total		$	(2,195	)	$	779

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 March 31, 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 March 31, 2019 and December 31, 2018 is presented in the following tables.

(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 March 31, 2019
Derivative Assets	$	17,165	$	(15,439	)	$	1,726	$	1,726	$	—	$	—
Derivative Liabilities	$	30,630	$	(26,032	)	$	4,598	$	1,726	$	6,986	$	(4,114	)

(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.

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8. Stockholders’ Equity

Common Shares Outstanding

Common shares outstanding excludes treasury shares totaling 0.9 million at March 31, 2019 and December 31, 2018, with a first-in-first-out cost basis of $16.6 million and $18.5 million at March 31, 2019 and December 31, 2018, respectively. Shares outstanding also excludes unvested restricted share awards totaling 1.3 million at March 31, 2019 and December 31, 2018.

Stock Buyback Program

On May 24, 2018, the Company’s board of directors approved a stock buyback program that authorized the repurchase of up to 5%, or approximately 4.3 million shares, of its outstanding common stock. The approved program allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company in one or more transactions, from time to time until December 31, 2019. 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. As of March 31, 2019, 200,000 shares of the Company’s common stock had been purchased at an average price of $41.30 per share under this program.

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		(55,114	)		—			—			(7,130	)		—		(62,244	)
Reclassification of net loss realized and included in earnings		—			—			1,177			619			—		1,796
Amortization of unrealized net loss on securities transferred to HTM		—			755			—			—			—		755
Income tax expense (benefit)		(12,508	)		171			267			(1,476	)		—		(13,546	)
Balance, March 31, 2018	$	(72,118	)	$	(14,001	)	$	(78,168	)	$	(16,262	)	$	—	$	(180,549	)
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		46,984			—			—			9,475			784		57,243
Reclassification of net loss realized and included in earnings		—			—			2,203			2,016			—		4,219
Amortization of unrealized net loss on securities transferred to HTM		—			591			—			—			—		591
Income tax expense		10,623			134			498			2,598			—		13,853
Balance, March 31, 2019	$	(13,764	)	$	(11,587	)	$	(108,542	)	$	600		$	784	$	(132,509	)

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

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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.

	Three Months Ended
Amount reclassified from AOCI (a)	March 31,						Affected line item on
(in thousands)	2019			2018			the statement of income
Amortization of unrealized net loss on securities transferred to HTM	$	(591	)	$	(755	)	Interest income
Tax effect		134			171		Income taxes
Net of tax		(457	)		(584	)	Net income
Amortization of defined benefit pension and post-retirement items		(2,203	)		(1,177	)	Other noninterest expense (b)
Tax effect		498			267		Income taxes
Net of tax		(1,705	)		(910	)	Net income
Reclassification of unrealized gain (loss) on cash flow hedges		(610	)		336		Interest income
Tax effect		138			(76	)	Income taxes
Net of tax		(472	)		260		Net income
Amortization of loss on terminated cash flow hedges		(1,406	)		(954	)	Interest income
Tax effect		318			216		Income taxes
Net of tax		(1,088	)		(738	)	Net income
Total reclassifications, net of tax	$	(3,722	)	$	(1,972	)	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
	March 31,
(in thousands)	2019		2018
Income from bank-owned life insurance	$	3,265	$	3,070
Credit related fees		2,595		2,722
Income from derivatives		809		1,523
Gain (loss) on sales of assets		397		(1,207	)
Other miscellaneous		2,402		3,377
Total other noninterest income	$	9,468	$	9,485

10. Other Noninterest Expense

Components of other noninterest expense are as follows:

	Three Months Ended
	March 31,
(in thousands)	2019			2018
Advertising	$	3,080		$	2,526
Corporate value and franchise taxes		4,042			3,440
Printing and supplies		1,169			1,286
Telecommunications and postage		3,466			3,850
Travel expense		1,098			1,066
Entertainment and contributions		2,708			2,518
Tax credit investment amortization		1,138			874
Other retirement expense		(4,105	)		(4,463	)
Other miscellaneous		5,691			5,684
Total other noninterest expense	$	18,287		$	16,781

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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
	March 31,
(in thousands, except per share data)	2019		2018
Numerator:
Net income to common shareholders	$	79,164	$	72,475
Net income allocated to participating securities - basic and diluted		1,337		1,366
Net income allocated to common shareholders - basic and diluted	$	77,827	$	71,109
Denominator:
Weighted-average common shares - basic		85,688		85,241
Dilutive potential common shares		112		182
Weighted-average common shares - diluted		85,800		85,423
Earnings per common share:
Basic	$	0.91	$	0.83
Diluted	$	0.91	$	0.83

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 1,281 for the three months ended March 31, 2019. There were no antidilutive potential common shares excluded from the calculation of diluted earnings per share for the three months ended March 31, 2018.

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.

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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 March 31,	2019			2018			2019			2018
Service cost	$	2,775		$	2,925		$	29		$	35
Interest cost		4,863			3,923			128			137
Expected return on plan assets		(11,300	)		(9,700	)		—			—
Amortization of net loss and prior service costs		2,430			1,326			(227	)		(149	)
Net periodic benefit cost (reduction of cost)	$	(1,232	)	$	(1,526	)	$	(70	)	$	23

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.

A summary of stock option activity for the three months ended March 31, 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
Exercised/Released		—		—				—
Cancelled/Forfeited		—		—				—
Expired		—		—				—
Outstanding at March 31, 2019		46,865	$	31.88		2.3	$	399
Exercisable at March 31, 2019		46,865	$	31.88		2.3	$	399

There were no exercises of stock options during the three months ended March 31, 2019. The total intrinsic value of options exercised during the three months ended March 31, 2018 was $0.5 million.

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 March 31, 2019 and changes during the three months ended March 31, 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		72,081			34.20
Vested		(8,028	)		47.17
Forfeited		(20,499	)		38.92
Nonvested at March 31, 2019		1,537,595		$	39.60

At March 31, 2019, there was $51.0 million of total unrecognized compensation expense related to nonvested restricted and performance shares expected to vest. This compensation is expected to be recognized in expense over a weighted average period of 3.3 years. The total fair value of shares which vested during the three months ended March 31, 2019 and 2018 was $0.1 million and $0.3 million, respectively.

During the three months ended March 31, 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

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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 core 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 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 March 31, 2019 and December 31, 2018:

	March 31,		December 31,
(in thousands)	2019		2018
Commitments to extend credit	$	7,198,032	$	7,234,528
Letters of credit		336,419		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.

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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 March 31, 2019 and December 31, 2018:

	March 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	—	$	72,143	$	—	$	72,143
Municipal obligations		—		245,940		—		245,940
Corporate debt securities		—		3,500		—		3,500
Residential mortgage-backed securities		—		1,413,032		—		1,413,032
Commercial mortgage-backed securities		—		787,834		—		787,834
Collateralized mortgage obligations		—		158,631		—		158,631
Total available for sale securities		—		2,681,080		—		2,681,080
Derivative assets (1)		—		25,827		—		25,827
Total recurring fair value measurements - assets		—	$	2,706,907		—	$	2,706,907
Liabilities
Derivative liabilities (1)	$	—	$	11,176	$	6,953	$	18,129
Total recurring fair value measurements - liabilities	$	—	$	11,176	$	6,953	$	18,129

	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, 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 three months ended March 31, 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)
Liability balance at December 31, 2017	$	—
Entry into derivative contract		7,304
Liability balance at December 31, 2018		7,304
Cash settlement		(414	)
Losses included in earnings		63
Liability balance at March 31, 2019	$	6,953

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

March 31, 2019

December 31, 2018

Valuation Technique

Unobservable Input

Values Utilized

Visa Class A appreciation

6% - 18%

Derivative liability

6,953

7,304

Discounted cash flow

Conversion rate

1.62x - 1.59x

Time until resolution

24-48 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 to other real estate owned. Subsequently, other real estate owned is carried at the lower of carrying value or fair value less estimated selling costs. Fair values are determined by sales agreement or third-party appraisals as discounted for estimated selling costs, information from comparable sales, and marketability of the property.

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.

	March 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	163,781	$	—	$	163,781
Other real estate owned and foreclosed assets, net		—		—		7,688		7,688
Total nonrecurring fair value measurements	$	—	$	163,781	$	7,688	$	171,469

	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:

	March 31, 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	$	523,956	$	—	$	—	$	523,956	$	523,956
Available for sale securities		—		2,681,080		—		2,681,080		2,681,080
Held to maturity securities		—		2,892,910		—		2,892,910		2,896,442
Loans, net		—		163,781		19,646,070		19,809,851		19,918,150
Loans held for sale		—		27,437		—		27,437		27,437
Derivative financial instruments		—		25,827		—		25,827		25,827
Financial liabilities:
Deposits	$	—	$	—	$	23,351,829	$	23,351,829	$	23,380,294
Federal funds purchased		450		—		—		450		450
Securities sold under agreements to repurchase		478,285		—		—		478,285		478,285
FHLB short-term borrowings		910,000		—		—		910,000		910,000
Long-term debt		—		227,206		—		227,206		224,962
Derivative financial instruments		—		11,176		6,953		18,129		18,129

	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

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

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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 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 March 31, 2019.

Issued but Not Yet Adopted Accounting Standards

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,” to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. 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 will now use forward-looking information to better 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 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 is not planning to early adopt this guidance. The Company has engaged third party consultants and formed cross-functional working groups comprised of individuals from various areas including credit, finance, treasury, risk management and information technology for implementation. Five work streams have been created to develop the expected credit loss models; execute system implementation; complete balance sheet scoping; ensure the design of effective internal controls surrounding new processes; and provide executive oversight of the project. The Company has completed the configuration of a vendor provided software solution for which testing and implementation is expected to be complete in second quarter of 2019. Validation of models began in the first quarter of 2019 and is expected to be completed during the second quarter of 2019. While the Company has not yet quantified the financial impact of adoption, the expectation is that application of this guidance will result in an increase in the allowance for loan losses given the change in methodology from covering losses inherent in the portfolio to covering losses over the remaining expected life of the portfolio. Application of the guidance is also expected to result in the establishment of an allowance for credit loss on held to maturity debt securities. The amount of the increase in these allowances will be impacted by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

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17. Subsequent Event

On April 30, 2019, the Company announced its entry to an Agreement and Plan of Merger providing for, among other things, the acquisition of MidSouth Bancorp, Inc. (“MidSouth”) (NYSE: MSL), parent company of MidSouth Bank, N.A. At March 31, 2019, MidSouth had approximately $1.7 billion in assets, including $0.9 billion of loans, and $1.4 billion of deposits. Under the terms of the agreement, each share of MidSouth common stock outstanding will convert, pursuant to a fixed conversion ratio, into the right to receive 0.2952 shares of the Company’s common stock. In addition, the merger agreement allows for the redemption of all of MidSouth’s outstanding preferred stock at closing, subject to receipt of applicable governmental approvals. The value of the stock-based consideration will be determined at the time of closing based on the fixed conversion ratio. The approximate transaction value based on an average of the Company’s share price at the date of the agreement, April 30, 2019, was $213 million. The acquisition is subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of MidSouth. The transaction is expected to close late in the third quarter of 2019.

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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 and 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 trust and asset management transaction, the proposed MidSouth acquisition, or future business combinations on our performance and financial condition including our ability to successfully integrate the businesses;

•

deposit trends;

•

credit quality trends;

•

changes in interest rates;

•

net interest margin trends;

•

future expense levels;

•

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.

Pending Acquisition

On April 30, 2019, we announced our entry into an agreement to acquire MidSouth Bancorp, Inc. (“MidSouth”) (NYSE: MSL) in a stock-for-stock transaction. MidSouth Bank N.A., the wholly-owned banking subsidiary of MidSouth, operates 42 locations in Louisiana and Texas and had approximately $1.7 billion of assets, including $0.9 billion of loans, and $1.4 billion of deposits at March 31, 2019. At the closing, each share of MidSouth’s common stock will convert to the right to receive 0.2952 shares of our common stock. The merger agreement also allows for the redemption of MidSouth’s outstanding preferred stock at closing, subject to the receipt of applicable governmental approvals. The Company expects acquisition-related expenses to approximate $38 million in 2019 and expects the transaction to be accretive to income beginning in the first quarter of 2020. The transaction is expected to add approximately $0.13 to $0.15 to 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. The acquisition is subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of MidSouth. The transaction is expected to close with a simultaneous systems conversion late in the third quarter of 2019.

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Current Economic Environment

Most of our market area experienced a modest to moderate expansion in economic activity during the first quarter of 2019, according to the Federal Reserve’s Summary of Commentary on Current Economic Conditions (“Beige Book”). Overall, the economic outlook remains positive. Activity in the energy sector expanded and outlooks improved compared to the prior quarter. Oil and gas production rose at a slow pace; however, spending for drilling activity declined as firms invested less into new equipment.

Commercial real estate conditions continued to advance in most of our markets. In our Houston market, apartment rents were flat and industrial leasing slowed.

The residential real estate market has a positive outlook with our markets reporting that lower mortgage rates are helping to boost growth from the prior report, but flat to the prior year and optimistic as the spring selling season gets underway.

Retail sales activity and consumer spending grew slightly in most of our markets. The Houston market reported flat sales and slower demand. Auto sales were down in all of our markets. The labor market remained tight in our markets with an increase in wages for hard-to-fill or in-demand positions.

Economic data indicates that loan growth was stable in most of our markets, with an increase in loan volumes in our Houston market, primarily with construction real estate lending. Reports also indicated that financial institutions were able to fund the majority of lending with their deposit base, although competition for deposits continues to increase. Our total loan balance increased $86.4 million, or 2% annualized, during the first quarter of 2019.

Highlights of First Quarter 2019

Net income for the first quarter of 2019 was $79.2 million, or $.91 per diluted common share (EPS), compared to $96.2 million, or $1.10 EPS in the fourth quarter of 2018 and $72.5 million, or $.83 EPS, in the first quarter of 2018. The first quarter of 2019 included a $10.1 million ($.09 per share after-tax impact) provision for loan losses related to the previously disclosed potential fraud associated with DC Solar (further discussion of this matter appears in the Provision for Loan Losses section later in this Item). The fourth quarter of 2018 included $1.9 million ($.02 per share impact) of nonoperating items and the first quarter of 2018 included $7.0 million ($.07 per share impact) of nonoperating items.

Highlights of our first quarter 2019 results (compared to fourth quarter 2018):

•

Net income was $79.2 million, or $.91 per diluted share, a decrease of $17.1 million, or $.19 per share. Excluding nonoperating items, net income was $87.1 million, a decrease of $10.6 million, or $.12 per share.

•

The first quarter results were impacted by a charge-off to the provision taken related to potential fraud on an equipment finance lease with DC Solar ($.09). Fourth quarter 2018 results were impacted by benefits realized on tax reform-related initiatives ($.11).

•

Net interest margin expanded 7 bps to 3.46%.

•

Criticized commercial loans declined $41 million, or 7% ($15 million energy and $26 million nonenergy).

•

Improved mix within the energy portfolio of 55% in exploration & production, transportation and storage, and 45% in onshore and offshore support services.

The first quarter of 2019 reflects improvements in the net interest margin and asset quality, two key areas of focus. During the fourth quarter of 2018, we restructured a portion of our investment and loan portfolios whereby we sold certain lower yielding securities and loans and reinvested in higher yielding assets. The portfolio restructuring and other improvements in our earning asset mix, along with the December 2018 interest rate increase, contributed to the expansion in the net interest margin. Asset quality improved with criticized commercial loans down in both the energy and nonenergy portfolios.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the first quarter of 2019 was $223.1 million, a $1.6 million, or 1%, increase from the fourth quarter of 2018. Net interest income (te) for the first quarter of 2019 increased $13.5 million, or 6%, compared to the first quarter of 2018. The linked quarter increase is primarily attributable to a full quarter impact of the fourth quarter portfolio restructure and the December 2018 rate increase, partially offset by two fewer accrual days.

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The net interest margin (te) was 3.46 % for the first quarter of 2019, up 7 bps from the fourth quarter of 2018. Net interest margin (te) was favorably impacted by the late 2018 portfolio restructuring. The restructuring and other improvements in the earning asset mix and the recent interest rate increase resulted in a 14 bp improvement in the earning asset yield, including increases in the loan yield of 13 bps, bond portfolio yield of 7 bps, and short term investments yield of 17 bps. Partially offsetting the linked quarter improvement in the earning asset yield was the movement of our deposit and loan betas at differing intervals. The deposit and loan betas are defined as the amount by which deposit and loan costs change in response to the movement in short-term interest rates. Our deposit beta moved from 31% to 50% in the first quarter of 2019, while our loan beta moved from 40% to 54% over the same period. The movement in the deposit beta was influenced by a 20 bp increase in the cost of brokered CDs, and a 20 bp increase in the rate paid on public fund deposits.

Compared to the first quarter of 2018, the net interest margin increased 9 bps, primarily due to an improvement in the earning asset mix and the net benefit from interest rate increases during 2018.

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

	Three Months Ended
	March 31, 2019								December 31, 2018							March 31, 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)	$	15,062.1	$	180.5			4.86	%	$	14,794.9	$	172.8		4.64	%	$	14,224.4	$	150.9		4.30	%
Residential mortgage loans		2,942.4		31.1			4.23	%		2,888.2		29.2		4.04	%		2,718.4		27.9		4.10	%
Consumer loans		2,122.4		29.9			5.72	%		2,134.6		32.5		6.04	%		2,085.7		29.0		5.64	%
Loan fees & late charges		—		(0.9	)		0.00	%		—		0.6		0.00	%		—		0.5		0.00	%
Total loans (te) (b)		20,126.9		240.6			4.84	%		19,817.7		235.1		4.71	%		19,028.5		208.3		4.43	%
Loans held for sale		20.6		0.3			4.92	%		22.2		0.2		2.91	%		32.2		0.2		2.75	%
US Treasury and government agency securities		123.8		0.7			2.25	%		131.8		0.8		2.23	%		148.4		0.8		2.21	%
Mortgage-backed securities and collateralized mortgage obligations		4,599.4		29.9			2.60	%		4,896.2		30.9		2.53	%		4,785.3		27.9		2.33	%
Municipals (te)		930.0		7.4			3.17	%		933.9		7.4		3.17	%		960.1		7.6		3.18	%
Other securities		3.5	0.0				3.09	%		3.6	0.0			2.77	%		3.5	0.0			2.06	%
Total securities (te) (c)		5,656.7		38.0			2.69	%		5,965.5		39.1		2.62	%		5,897.3		36.3		2.46	%
Total short-term investments		216.2		1.2			2.18	%		205.8		1.0		2.01	%		148.3		0.5		1.34	%
Total earning assets (te)	$	26,020.4	$	280.1			4.35	%	$	26,011.2	$	275.4		4.21	%	$	25,106.3	$	245.3		3.95	%
Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	8,082.6	$	14.7			0.74	%	$	7,940.7	$	12.4		0.62	%	$	8,043.2	$	9.1		0.46	%
Time deposits		3,743.3		18.0			1.95	%		3,616.2		16.6		1.82	%		2,979.0		9.7		1.32	%
Public funds		3,060.5		13.4			1.78	%		2,680.8		10.7		1.58	%		3,070.1		8.1		1.07	%
Total interest-bearing deposits		14,886.4		46.1			1.26	%		14,237.7		39.7		1.11	%		14,092.3		26.9		0.78	%
Short-term borrowings		1,684.9		8.1			1.92	%		2,330.3		11.5		1.98	%		1,823.1		5.4		1.17	%
Long-term debt		225.0		2.8			4.99	%		222.3		2.7		4.82	%		305.1		3.4		4.48	%
Total borrowings		1,909.9		10.9			2.30	%		2,552.6		14.2		2.21	%		2,128.2		8.8		1.66	%
Total interest-bearing liabilities		16,796.3		57.0			1.38	%		16,790.3		53.9		1.27	%		16,220.5		35.7		0.89	%
Net interest-free funding sources		9,224.1								9,220.9							8,885.8
Total cost of funds	$	26,020.4	$	57.0			0.89	%	$	26,011.2	$	53.9		0.82	%	$	25,106.3	$	35.7		0.58	%
Net interest spread (te)			$	223.1			2.97	%			$	221.5		2.94	%			$	209.6		3.05	%
Net interest margin	$	26,020.4	$	223.1			3.46	%	$	26,011.2	$	221.5		3.39	%	$	25,106.3	$	209.6		3.37	%

(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 $5.0 million for the three months ended March 31, 2019 and December 31, 2018 and $6.8 million for the three months ended March 31, 2018.

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Provision for Loan Losses

During the first quarter of 2019, we recorded a provision for loan losses of $18.0 million, up $9.9 million from the fourth quarter of 2019 and up $5.8 million from the first quarter of 2018. Included in the current quarter’s provision is a $10.1 million charge-off related to the DC Solar credit discussed below and a relatively flat allowance compared to the prior quarter.

The Company had a lease financing facility 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. The $10.1 million charged-off taken in the quarter represents the majority of our exposure to this borrower. There could be potential for some recovery in the future depending on our ability to sell or re-lease the solar units.

The provision includes net charge-offs totaling $17.9 million, which represents 0.36% of average total loans on an annualized basis in the first quarter of 2019, or 0.16% when adjusted to exclude the DC Solar charge-off, compared to net charge-offs of $28.1 million, or 0.56 % of average total loans in the fourth quarter of 2018.

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 $70.5 million for the first quarter of 2019, down $4.0 million, or 5% from the fourth quarter of 2018 and up $4.3 million, or 6%, compared to the first quarter of 2018. Excluding nonoperating items related to a portfolio restructure in the fourth quarter of 2018 and a loss on the sale of a subsidiary in the first quarter of 2018, noninterest income was down $3.4 million, or 5% from the fourth quarter of 2018 and up $3.1 million, or 5%, from the first quarter of 2018. The decrease from the prior quarter was primarily driven by decreases due to seasonality, market conditions and fewer business days in the quarter discussed in more detail below. The increase compared to the first quarter of 2018 was largely driven by an increase in trust fees following the trust and asset management acquisition, as well as higher bank card and ATM fees.

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

	Three Months Ended
	March 31,		December 31,			March 31,
	2019		2018			2018
Service charges on deposit accounts	$	20,367	$	21,466		$	21,448
Trust fees		15,124		15,762			11,335
Bank card and ATM fees		15,290		15,656			14,458
Investment and annuity fees and insurance commissions		6,528		6,307			6,125
Secondary mortgage market operations		3,726		3,933			3,401
Income from bank-owned life insurance		3,265		3,141			3,070
Credit related fees		2,595		3,165			2,722
Income from derivatives		809		893			1,523
Gain (loss) on sales of assets		397		(151	)		(62	)
Other miscellaneous		2,402		3,762			3,377
Total noninterest operating income	$	70,503	$	73,934		$	67,397
Nonoperating income items		—		604			(1,145	)
Total noninterest income	$	70,503	$	74,538		$	66,252

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	Three Months Ended
	March 31,		December 31,			March 31,
(in thousands)	2019		2018			2018
Gain (loss) on portfolio restructure:
Gain on sale of Visa Class B common shares	$	-	$	33,229		$	-
Loss on sale of investment securities		-		(25,480	)		-
Loss on sale of loans		-		(7,145	)		-
Total net gain on portfolio restructure	$	-	$	604		$	-
Loss on sale of subsidiary		-		-			(1,145	)
Total nonoperating income	$	-	$	604		$	(1,145	)

Service charges on deposits totaled $20.4 million for the first quarter of 2019, down $1.1 million, or 5%, from both the fourth quarter of 2018 and the first quarter of 2018. The decrease from the prior quarter was primarily due to fewer business days and seasonal decrease in consumer overdraft fees. The decrease from the first quarter of 2018 was due to lower consumer overdraft fees and service charges, partially offset by increased check printing fees.

Trust fees decreased $0.6 million, or 4%, linked quarter largely as a result of market conditions, which began to decline towards the end of fourth quarter 2018 and gradually recovered over the current quarter. Compared to the first quarter of 2018, trust fees increased $3.8 million, or 33%, largely due to the July 2018 trust and asset management acquisition.

Bank card and ATM fees totaled $15.3 million for the first quarter of 2019, down $0.4 million, or 2%, from the fourth quarter of 2018, due to fewer days in the first quarter. Compared to the first quarter of 2018, bank card and ATM fees were up $0.8 million, or 6%, primarily due to increased card activity.

Investment and annuity fees and insurance commissions increased $0.2 million, or 4%, compared to fourth quarter 2018 primarily due to bond trading fees attributable to a higher volume of institutional brokerage sales and underwriting activity, partially offset by a decrease in insurance and annuity sales. Investment and annuity fees and insurance commissions increased $0.4 million, or 7%, compared to first quarter 2018.

Fee income from secondary mortgage market operations was down $0.2 million, or 5%, from fourth quarter of 2018 and up $0.3 million, or 10%, from the first quarter of 2018. These fees will vary based on origination volume and the timing of subsequent sales.

Income from bank-owned life insurance was $3.3 million in the first quarter of 2019, up $0.1 million, or 4%, from the fourth quarter of 2018 and up $0.2 million, or 6%, from the first quarter of 2018. The increase from the prior quarter is related to a mortality gain and the increase from the first quarter of 2018 is related to the restructure of a portion of our bank owned life insurance contracts during the third quarter of 2018.

Credit related fees were $2.6 million for the first quarter of 2019, down $0.6 million, or 18%, from the fourth quarter of 2018 and down $0.1 million, or 5%, from the first quarter of 2018. The linked-quarter decline was due to lower letter of credit and unused commitment fees, primarily attributable to fewer energy-related participation relationships.

Income from our customer interest rate derivative program resulted in a $0.8 million net gain for the first quarter of 2019 compared to $0.9 million in the fourth quarter of 2018 and $1.5 million for the first quarter of 2018. Derivative income can be volatile and is dependent upon both customer sales activity and market value adjustments due to market interest rate movement.

Gain on disposal of assets was $0.4 million in the first quarter of 2019, primarily attributable to the sale of mortgage loans. In the fourth quarter of 2018, we recorded a loss of $0.2 million, primarily attributable to fixed asset retirements.

Other miscellaneous income of $2.4 million was down $1.4 million, or 36%, compared to the fourth quarter of 2018 and $1.0 million, or 29%, compared to the first quarter of 2018. The decrease compared to both periods was due largely to lower syndication fees and earnings from community development entities and other investments.

Noninterest Expense

Noninterest expense for the first quarter of 2019 was $175.7 million, down $3.7 million, or 2%, from the fourth quarter of 2018, and up $4.9 million, or 3%, from the first quarter of 2018. Excluding nonoperating expenses, operating expense for the first quarter of 2019 was down $1.2 million, or less than 1%, and up $10.9 million, or 7%, from the first quarter of 2018.

There were no nonoperating noninterest expenses in the first quarter of 2019. Nonoperating noninterest expenses in the fourth quarter of 2018 totaled $2.5 million and primarily included costs associated with Hurricane Michael damage, the trust and asset management acquisition and the move of the New Orleans Main regional headquarters. Nonoperating noninterest expenses for the first quarter of

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2018 included costs of a one-time bonus, the brand consolidation project, the sale of the consumer finance company, and the acquisition of the trust and asset management business. The components of noninterest operating and nonoperating expense are presented in the following tables for the indicated periods.

	Three Months Ended
	March 31,			December 31,			March 31,
(in thousands)	2019			2018			2018
Operating expense
Compensation expense	$	83,968		$	86,508		$	76,743
Employee benefits		19,730			18,400			19,623
Personnel expense		103,698			104,908			96,366
Net occupancy expense		11,984			12,153			10,943
Equipment expense		4,679			3,827			3,493
Data processing expense		19,331			18,492			16,368
Professional services expense		8,168			9,390			7,847
Amortization of intangible assets		5,138			5,472			5,618
Deposit insurance and regulatory fees		5,406			6,754			7,948
Other real estate (income) expense		(991	)		(2,924	)		210
Advertising		3,080			3,934			2,341
Corporate value and franchise taxes		4,042			2,860			3,440
Printing and supplies		1,169			1,209			1,031
Telecommunications and postage		3,466			3,555			3,850
Travel expense		1,098			1,462			1,064
Entertainment and contributions		2,708			2,899			2,509
Tax credit investment expense		1,138			1,857			874
Other retirement expense		(4,105	)		(5,076	)		(4,463	)
Other miscellaneous		5,691			6,136			5,499
Total operating expense	$	175,700		$	176,908		$	164,938
Nonoperating expense items		-			2,458			5,853
Total noninterest expense	$	175,700		$	179,366		$	170,791

	Three Months Ended
	March 31,		December 31,			March 31,
(in thousands)	2019		2018			2018
Nonoperating expense
Personnel expense	$	—	$	97		$	3,608
Net occupancy expense		—		421			67
Equipment expense		—		212			53
Data processing expense		—		423			81
Professional services expense		—		(2	)		1,408
Advertising		—		(196	)		185
Printing and supplies		—		78			255
Loss on restructure of bank-owned life insurance contracts		—		62			—
Other expense		—		1,363			196
Total nonoperating expenses	$	—	$	2,458		$	5,853

The following discussion of the components of operating expense excludes nonoperating items for each period.

Personnel expense totaled $103.7 million for the first quarter of 2019, down $1.2 million, or 1%, compared to the prior quarter, primarily due to two fewer payroll days in the quarter. Personnel costs were up $7.3 million, or 8%, compared to the first quarter of 2018 due to merit increases and additional headcount following the trust and asset management acquisition.

Occupancy and equipment expenses totaled $16.7 million in the first quarter of 2019, up $ 0.7 million, or 4%, from the fourth quarter of 2018 and up $2.2 million, or 15%, from the first quarter of 2018. The increase compared to the prior quarter is largely due to higher depreciation expense on furniture and equipment following the move of the New Orleans regional headquarters. The increase compared to first quarter of 2018 is attributable to both the move of the regional headquarters and an increase in depreciation of new signage following the Company’s rebranding.

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Data processing expense was $19.3 million for the first quarter of 2019, up $0.8 million, or 5%, from the fourth quarter of 2018, and up $3.0 million, or 18%, from the first quarter of 2018.

Professional service expense totaled $8.2 million in the first quarter of 2019, down $1.2 million, or 13%, compared to the previous quarter and up $0.3 million, or 4% compared to the same quarter last year. The decrease from the prior quarter was largely due to a decrease in costs associated with problem credits. Professional service expense includes legal, audit, accounting and other consulting services.

Deposit insurance and regulatory fees and corporate value and franchise taxes were $9.4 million, a decrease of $0.2 million, or 2%, from the fourth quarter of 2018 and down $1.9 million, or 17%, from the first quarter of 2018. Deposit insurance and regulatory fees and corporate value and franchise taxes were down both quarter over quarter and year over year primarily due to a reduction in the risk-based deposit insurance assessment fees, with the year-over-year variance impacted by the elimination of the quarterly deposit insurance fund surcharge.

Business development-related expenses (including advertising, travel and entertainment and contributions) were $6.9 million for the first quarter of 2019, down $1.4 million, or 17%, from the fourth quarter of 2018 and up $1.0 million, or 16%, from the first quarter of 2018. The primary driver of the decrease from the prior quarter and the increase from the same quarter a year ago is advertising expenditures.

Other real estate income was $1.0 million for the first quarter of 2019 compared to $2.9 million in the fourth quarter of 2018 and a net expense of $0.2 million in the first quarter of 2018. The first quarter of 2019 and fourth quarter of 2018 reflect gains on dispositions of properties in excess of holding costs.

All other expenses, excluding amortization of intangibles and nonoperating expense items, totaled $7.4 million for the first quarter of 2019, down $0.3 million, or 4%, from the fourth quarter of 2018, and up $0.6 million, or 8%, from the first quarter of 2018. The variances compared to prior quarter and prior year were largely driven by changes in tax credit investment expense, the net credit for other retirement expense and other miscellaneous expense.

Income Taxes

The effective income tax rate for the first quarter of 2019 was approximately 17.6%, compared to 7.9% in the fourth quarter of 2018 and 18.5% in the first quarter of 2018. The effective tax rate was lower in the fourth quarter of 2018 primarily due to the $9.9 million income tax benefit attributable to the 2017 tax savings initiatives implemented following the passage of the Tax Cuts and Jobs Act (“Tax Act”), which, among other things, lowered the corporate federal income tax rate from 35% to 21%. The fourth quarter 2018 effective tax rate excluding impact of the tax savings initiatives would have been 17.5%, which is comparable to the first quarter 2019 effective tax rate. Management expects the effective tax rate for 2019 will be in the range of 17%-19% 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.

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

	Three Months Ended
	March 31,			December 31,			March 31,
(in thousands)	2019			2018			2018
Taxes computed at statutory rate	$	20,163		$	21,946		$	18,663
Tax credits:
QZAB/QSCB		(710	)		(759	)		(759	)
NMTC - Federal and State		(1,402	)		(3,805	)		(1,379	)
LIHTC and other tax credits		—			(365	)		—
Total tax credits		(2,112	)		(4,929	)		(2,138	)
State income taxes, net of federal income tax benefit		1,905			2,813			2,044
Tax-exempt interest		(2,417	)		(2,536	)		(2,786	)
Life insurance contracts		(678	)		(529	)		(930	)
Employee share-based compensation		(272	)		(919	)		(140	)
Impact from interim estimated effective tax rate		(776	)		1,152			356
FDIC assessment disallowance		545			566			747
Return to provision adjustment		—			(9,942	)		—
Other, net		492			643			581
Income tax expense	$	16,850		$	8,265		$	16,397

Selected Financial Data

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

	Three Months Ended
	March 31,		December 31,		March 31,
	2019		2018		2018
Common Share Data
Earnings per share:
Basic	$	0.91	$	1.11	$	0.83
Diluted	$	0.91	$	1.10	$	0.83
Cash dividends paid	$	0.27	$	0.27	$	0.24
Book value per share (period-end)	$	37.23	$	35.98	$	33.96
Tangible book value per share (period-end)	$	26.92	$	25.62	$	24.22
Weighted average number of shares (000s):
Basic		85,688		85,522		82,241
Diluted		85,800		85,677		85,423
Period-end number of shares (000s)		85,710		85,643		85,285
Market data:
High sales price	$	44.34	$	49.22	$	56.40
Low sales price	$	34.11	$	32.59	$	49.48
Period-end closing price	$	40.40	$	34.77	$	51.70
Trading volume (000s) (a)		28,124		33,269		35,459

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

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	Three Months Ended
	March 31,			December 31,			March 31,
(in thousands)	2019			2018			2018
Income Statement:
Interest income	$	276,283		$	271,357		$	241,395
Interest income (te) (a)		280,107			275,395			245,358
Interest expense		57,029			53,924			35,731
Net interest income (te)		223,078			221,471			209,627
Provision for loan and lease losses		18,043			8,100			12,253
Noninterest income		70,503			74,538			66,252
Noninterest expense (excluding amortization of intangibles)		170,562			173,894			165,173
Amortization of intangibles		5,138			5,472			5,618
Income before income taxes		96,014			104,505			88,872
Income tax expense		16,850			8,265			16,397
Net income	$	79,164		$	96,240		$	72,475

Earnings excluding nonoperating items
Net income	$	79,164		$	96,240		$	72,475
Provision for alleged fraud (b)	$	10,084			—			—
Nonoperating income		—			(604	)		1,145
Nonoperating expense		—			2,458			5,853
Income tax benefit		(2,118	)		(389	)		(1,216	)
Nonoperating items, net of applicable income tax benefit		7,966			1,465			5,782
Operating earnings	$	87,130		$	97,705		$	78,257

	Three Months Ended
	March 31,			December 31,			March 31,
	2019			2018			2018
Performance Ratios
Return on average assets		1.13	%		1.35	%		1.08	%
Return on average common equity		10.30	%		12.76	%		10.23	%
Return on average tangible common equity		14.38	%		18.15	%		14.41	%
Earning asset yield (te) (a)		4.35	%		4.21	%		3.95	%
Total cost of funds		0.89	%		0.82	%		0.58	%
Net interest margin (te)		3.46	%		3.39	%		3.37	%
Noninterest income to total revenue (te)		24.01	%		25.18	%		24.01	%
Average loan/deposit ratio		87.08	%		88.09	%		86.32	%
FTE employees (period-end)		3,885			3,933			3,775
Capital Ratios
Common stockholders' equity to total assets		11.20	%		10.91	%		10.61	%
Tangible common equity ratio (c)		8.36	%		8.02	%		7.80	%

Select performance measures excluding nonoperating items
Operating earnings per share - diluted (d)	$	1.00		$	1.12		$	0.90
Return on average assets - operating		1.24	%		1.37	%		1.17	%
Return on average common equity - operating		11.33	%		12.95	%		11.05	%
Return on average tangible common equity - operating		15.83	%		18.43	%		15.56	%
Efficiency ratio (e)		58.10	%		58.03	%		57.51	%
Noninterest income as a percent of total revenue (te) - operating		24.01	%		25.03	%		24.33	%

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

(d)	See Reconciliation of Non-GAAP Measures “Operating earnings per share – diluted” for the reconciliation of this non-GAAP measure.

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

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	Three Months Ended
	March 31,			December 31,			March 31,
($ in thousands)	2019			2018			2018
Asset Quality Information
Nonaccrual loans (a)	$	204,831		$	187,295		$	275,179
Restructured loans - still accruing		117,578			139,042			166,520
Total nonperforming loans		322,409			326,337			441,699
Other real estate (ORE) and foreclosed assets		27,148			26,270			26,630
Total nonperforming assets	$	349,557		$	352,607		$	468,329
Accruing loans 90 days past due (b)	$	20,308		$	5,589		$	12,724
Net charge-offs		17,869			28,136			12,200
Allowance for loan and lease losses		194,688			194,514			210,713
Provision for loan and lease losses		18,043			8,100			12,253
Ratios:
Nonperforming assets to loans, ORE and foreclosed assets		1.74	%		1.76	%		2.45	%
Accruing loans 90 days past due to loans		0.10	%		0.03	%		0.07	%
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets		1.84	%		1.79	%		2.52	%
Net charge-offs to average loans		0.36	%		0.56	%		0.26	%
Allowance for loan losses to period-end loans		0.97	%		0.97	%		1.10	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due		56.81	%		58.60	%		46.37	%

(a)

Included in nonaccrual loans are nonaccruing restructured loans totaling $105.9 million, $85.5 million and $118.0 million at 3/31/2019, 12/31/2018 and 3/31/2018, 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 $1.5 million, $8.7 million and $13.7 million as of 3/31/19, 12/31/18 and 3/31/18, respectively.

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	March 31,			December 31,			September 30,			June 30,			March 31,
(in thousands)	2019			2018			2018			2018			2018
Period-End Balance Sheet
Total loans, net of unearned income	$	20,112,838		$	20,026,411		$	19,543,717		$	19,370,917		$	19,092,504
Loans held for sale		27,437			28,150			29,043			36,047			21,827
Securities		5,577,522			5,670,584			5,987,447			6,113,873			5,930,076
Short-term investments		163,762			111,094			108,074			104,210			61,541
Earning assets		25,881,559			25,836,239			25,668,281			25,625,047			25,105,948
Allowance for loan losses		(194,688	)		(194,514	)		(214,550	)		(214,530	)		(210,713	)
Goodwill and other intangible assets		883,097			887,123			892,595			825,223			830,544
Other assets		1,920,263			1,707,059			1,751,849			1,689,707			1,571,558
Total assets	$	28,490,231		$	28,235,907		$	28,098,175		$	27,925,447		$	27,297,337
Noninterest-bearing deposits	$	8,158,658		$	8,499,027		$	8,140,530		$	8,165,796		$	8,230,060
Interest-bearing transaction and savings deposits		8,224,203			8,000,093			7,972,417			7,711,542			8,058,793
Interest-bearing public funds deposits		3,229,589			3,006,516			2,613,858			2,854,839			3,108,008
Time deposits		3,767,844			3,644,549			3,691,002			3,503,161			3,088,861
Total interest-bearing deposits		15,221,636			14,651,158			14,277,277			14,069,542			14,255,662
Total deposits		23,380,294			23,150,185			22,417,807			22,235,338			22,485,722
Short-term borrowings		1,388,735			1,589,128			2,276,647			2,314,190			1,452,097
Long-term debt		224,962			224,993			215,912			266,009			300,443
Other liabilities		305,665			190,261			208,931			180,355			163,037
Stockholders' equity		3,190,575			3,081,340			2,978,878			2,929,555			2,896,038
Total liabilities & stockholders' equity	$	28,490,231		$	28,235,907		$	28,098,175		$	27,925,447		$	27,297,337

	Three Months Ended
	March 31,			December 31,			March 31,
(in thousands)	2019			2018			2018
Average Balance Sheet
Total loans, net of unearned income	$	20,126,948		$	19,817,729		$	19,028,490
Loans held for sale		20,618			22,187			32,194
Securities (a)		5,656,689			5,965,461			5,897,290
Short-term investments		216,192			205,806			148,309
Earning assets		26,020,447			26,011,183			25,106,283
Allowance for loan losses		(196,384	)		(213,902	)		(216,796	)
Goodwill and other intangible assets		885,381			889,820			833,269
Other assets		1,742,104			1,572,862			1,514,321
Total assets	$	28,451,548		$	28,259,963		$	27,237,077
Noninterest-bearing deposits	$	8,227,698		$	8,260,487		$	7,951,121
Interest-bearing transaction and savings deposits		8,082,584			7,940,670			8,043,176
Interest-bearing public fund deposits		3,060,565			2,680,837			3,070,079
Time deposits		3,743,292			3,616,151			2,979,043
Total interest-bearing deposits		14,886,441			14,237,658			14,092,298
Total deposits		23,114,139			22,498,145			22,043,419
Short-term borrowings		1,684,904			2,330,280			1,823,033
Long-term debt		224,966			222,339			305,117
Other liabilities		309,488			215,934			192,695
Stockholders' equity		3,118,051			2,993,265			2,872,813
Total liabilities & stockholders' equity	$	28,451,548		$	28,259,963		$	27,237,077

(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
	March 31,			December 31,			September 30,			June 30,			March 31,
(in thousands)	2019			2018			2018			2018			2018
Net interest income	$	219,254		$	217,433		$	214,194		$	211,547		$	205,664
Noninterest income		70,503			74,538			75,518			68,832			66,252
Total revenue	$	289,757		$	291,971		$	289,712		$	280,379		$	271,916
Tax-equivalent adjustment (a)		3,824			4,038			4,095			4,081			3,963
Nonoperating revenue		—			(604	)		—			—			1,145
Operating revenue (te)	$	293,581		$	295,405		$	293,807		$	284,460		$	277,024
Noninterest expense		(175,700	)		(179,366	)		(181,187	)		(184,402	)		(170,791	)
Nonoperating expense		-			2,458			4,827			15,805			5,853
Operating pre-provision net revenue (te)	$	117,881		$	118,497		$	117,447		$	115,863		$	112,086

Operating earnings per share - diluted

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
(in thousands)	2019			2018			2018			2018			2018
Net income	$	79,164		$	96,240		$	83,878		$	71,177		$	72,475
Net income allocated to participating securities		(1,337	)		(1,691	)		(1,544	)		(1,328	)		(1,366	)
Net income available to common shareholders		77,827			94,549			82,334			69,849			71,109
Nonoperating items, net of applicable income tax		7,966			1,465			3,813			12,486			5,782
Nonoperating items allocated to participating securities		(134	)		(26	)		(71	)		(233	)		(109	)
Operating earnings available to common shareholders		85,659			95,988			86,076			82,102			76,782
Weighted average common shares - diluted		85,800			85,677			85,539			85,483			85,423
Earnings per share - diluted	$	0.91		$	1.10		$	0.96		$	0.82		$	0.83
Operating earnings per share - diluted	$	1.00		$	1.12		$	1.01		$	0.96		$	0.90

(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 33.57% at March 31, 2019, compared to 41.39% at December 31, 2018 and 43.35% at March 31, 2018. The total of pledged securities at March 31, 2019 was $3.7 billion, up $391.2 million from December 31, 2018. Securities are pledged as collateral related to public funds and repurchase agreements. Total securities of $5.6 billion at March 31, 2019 were down $93.1 million compared to December 31, 2018 and $297.7 million lower than at March 31, 2018.

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	March 31,			December 31,			September 30,			June 30,			March 31,
Liquidity Metrics	2019			2018			2018			2018			2018
Free securities / total securities		33.57	%		41.39	%		48.90	%		49.31	%		43.35	%
Core deposits / total deposits		89.98	%		90.47	%		89.71	%		89.65	%		90.94	%
Wholesale funds / core deposits		13.61	%		14.53	%		19.34	%		19.93	%		14.32	%
Quarterly average loans /quarterly average deposits		87.08	%		88.09	%		88.39	%		86.84	%		86.32	%

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 March 31, 2019, deposits totaled $23.4 billion, an increase of $230.1 million, or 1%, from December 31, 2018 and an increase of $894.6 million, or 4%, from March 31, 2018. Core deposits consist of total deposits excluding certificates of deposit (“CDs”) of $250,000 or more and brokered deposits. Core deposits totaled $21.0 billion at March 31, 2019, an increase of $93.6 million from December 31, 2018, and $591.2 million from March 31, 2018. The ratio of core deposits to total deposits was 89.98% at March 31, 2019, compared to 90.47% at December31, 2018 and 90.94% at March 31, 2018. Brokered deposits totaled $1.2 billion as of March 31, 2019, an increase of $21.2 million compared to December 31, 2018 and $74.9 million compared to March 31, 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 March 31, 2019, the Bank had borrowings of approximately $900 million and had approximately $3.8 billion available under this line. The Bank also has unused borrowing capacity at the Federal Reserve’s discount window of approximately $2.7 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 13.61% of core deposits at March 31, 2019, compared to 14.53% at December 31, 2018 and 14.32% at March 31, 2018. The linked quarter decrease in wholesale funds was primarily related to decreases in FHLB borrowings. The year over year decrease in wholesale funds was primarily related to decreases in FHLB borrowings, long-term debt and federal funds purchased, partially offset by increases in brokered deposits and repurchase agreements. 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 loan-to-deposit ratio for the first quarter of 2019 was 87.08%, compared to 88.09% for the fourth quarter of 2018 and 86.32% for the first quarter of 2018. Management has an established target range for the loan-to-deposit ratio of 87% to 89%.

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 three months ended March 31, 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 six 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.

CAPITAL RESOURCES

Stockholders’ equity totaled $3.2 billion at March 31, 2019, up $109 million, or 4%, from December 31, 2018 and up $295 million, or 10%, from March 31, 2018. The tangible common equity ratio was 8.36 % at March 31, 2019, compared to 8.02% at December 31, 2018 and 7.80% at March 31, 2018. The increase in the ratio from prior quarter is due to increases in net tangible retained earnings and net gains on fair value adjustments of securities available for sale included in other comprehensive income. The increase from March 31, 2018 was primarily related to the change in net tangible retained earnings and the reduction in accumulated other comprehensive losses, partially offset by tangible asset growth and an increase in intangible assets related to acquisition transactions. Management has established an internal target for the tangible common equity ratio of at least 8.00%; however, 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.

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The regulatory capital ratios of the Company and the Bank as of March 31, 2019 continued to improve and remained well in excess of current regulatory minimum requirements. 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, including the fully phased-in conservation buffer. 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. The Company’s and Bank’s regulatory filings for quarter ended March 31, 2018 were filed in the names of Hancock Holding Company and Whitney Bank, respectively.

	Well-			March 31,			December 31,			September 30,			June 30,			March 31,
	Capitalized			2019			2018			2018			2018			2018
Total capital (to risk weighted assets)
Hancock Whitney Corporation		10.00	%		12.24	%		11.99	%		11.98	%		12.12	%		12.00	%
Hancock Whitney Bank		10.00	%		11.73	%		11.17	%		11.25	%		11.57	%		11.60	%
Tier 1 common equity capital (to risk weighted assets)
Hancock Whitney Corporation		6.50	%		10.74	%		10.48	%		10.36	%		10.48	%		10.35	%
Hancock Whitney Bank		6.50	%		10.88	%		10.32	%		10.30	%		10.60	%		10.63	%
Tier 1 capital (to risk weighted assets)
Hancock Whitney Corporation		8.00	%		10.74	%		10.48	%		10.36	%		10.48	%		10.35	%
Hancock Whitney Bank		8.00	%		10.88	%		10.32	%		10.30	%		10.60	%		10.63	%
Tier 1 leverage capital
Hancock Whitney Corporation		5.00	%		8.85	%		8.67	%		8.50	%		8.66	%		8.51	%
Hancock Whitney Bank		5.00	%		8.97	%		8.54	%		8.46	%		8.77	%		8.75	%

On May 24, 2018, our board of directors approved a stock buyback program that authorized the repurchase of up to 5%, or approximately 4.3 million shares, of outstanding common stock. The approved program allows us to repurchase shares of our common stock either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company in one or more transactions, from time to time until December 31, 2019. 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. As of March 31, 2019, we had purchased 200,000 shares of our common stock at an average price of $41.30 per share under this program.

On January 28, 2019, our board of directors declared the regular first quarter cash dividend at $0.27 per share, the same as prior quarter. The Company has paid uninterrupted quarterly dividends to shareholders since 1967.

BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $5.6 billion at March 31, 2019, down $93.1 million, or 2%, from at December 31, 2018 and down $352.6 million, or 6%, from March 31, 2018. At March 31, 2019, securities available for sale totaled $2.7 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 duration generally between two and five and a half years. At March 31, 2019, the average expected maturity of the portfolio was 5.52 years with an effective duration of 4.37 years and a nominal weighted-average yield of 2.75%. Management simulations indicate that the effective duration would increase to 4.59 years with a 100 bp increase in the yield curve and increase to 4.75 years with a 200 bp increase. At December 31, 2018, the average expected maturity of the portfolio was 5.67 years with an effective duration of 4.67 years and a nominal weighted-average yield of 2.75%. The change in expected maturity, effective duration, and nominal weighted-average yield is primarily related to securities prepayments and maturities during the first quarter of 2019.

Loans

Total loans at March 31, 2019 were $20.1 billion, up $86.4 million, or less than 1%, from December 31, 2018, and up $1.0 billion, or 5.3%, from March 31, 2018. Growth from December 31, 2018 was impacted by unanticipated paydowns, approximately $42 million of

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mortgage loan sales, and $17.9 million in net charge-offs, of which $10.1 million was related to the DC Solar alleged fraud. Net loan growth continues to be diversified across products and the Company’s footprint. Management anticipates $75 million to $125 million of period end loan growth during the second quarter of 2019, with full year average percentage growth expected to be in mid-single digits.

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

	March 31,		December 31,		September 30,		June 30,		March 31,
(in thousands)	2019		2018		2018		2018		2018
Total loans:
Commercial non-real estate	$	8,656,326	$	8,620,601	$	8,438,884	$	8,410,961	$	8,336,222
Commercial real estate - owner occupied		2,515,428		2,457,748		2,300,271		2,233,794		2,185,543
Total commercial and industrial		11,171,754		11,078,349		10,739,155		10,644,755		10,521,765
Commercial real estate - income producing		2,563,394		2,341,779		2,311,699		2,342,192		2,394,862
Construction and land development		1,340,067		1,548,335		1,523,419		1,515,233		1,413,878
Residential mortgages		2,933,251		2,910,081		2,846,916		2,780,359		2,732,821
Consumer		2,104,372		2,147,867		2,122,528		2,088,378		2,029,178
Total loans	$	20,112,838	$	20,026,411	$	19,543,717	$	19,370,917	$	19,092,504

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.

At March 31, 2019, commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $11.2 billion, or 56% of the total loan portfolio, an increase of $93 million, or 1%, from December 31, 2018. The growth was across the Company’s footprint and in many major lines including real estate, manufacturing, retail and transportation.

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 March 31, 2019 totaling approximately $2.1 billion, or 10% of total loans, were up $96.6 million from December 31, 2018. Approximately $555.6 million of our shared national credits were with energy-related customers at March 31, 2019.

Loans to borrowers in the energy sector totaled $1.1 billion, relatively unchanged from December 31, 2018 and March 31, 2018. We intend to maintain our total energy concentration at approximately 5% while continuing to shift the mix within the portfolio to approximately one-third support services subsector and two-thirds exploration and production and midstream subsectors. At March 31, 2019, approximately $580 million, or 55%, of the portfolio was comprised of customers engaged in exploration and production, transportation, and storage activities. The remaining $483 million, or 45%, of the portfolio was comprised of customers engaged in onshore and offshore services and products to support exploration and production activities.

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

	March 31,					December 31,					September 30,					June 30,					March 31,
	2019					2018					2018					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	$	1,430,878		13	%	$	1,349,674		12	%	$	1,232,737		11	%	$	1,195,278		11	%	$	1,154,304		11	%
Health Care and Social Assistance		1,083,469		10	%		1,120,799		10	%		1,135,040		11	%		1,152,593		11	%		1,159,214		11	%
Mining, Quarrying, and Oil and Gas Extraction (a)		957,590		8	%		1,016,870		9	%		874,223		8	%		932,113		9	%		972,580		9	%
Retail Trade (a)		932,857		8	%		902,783		8	%		930,134		9	%		901,020		8	%		869,662		8	%
Manufacturing (a)		913,363		8	%		866,079		8	%		846,447		8	%		820,135		8	%		795,014		8	%
Public Administration		799,237		7	%		814,442		7	%		842,199		8	%		866,052		8	%		857,736		8	%
Transportation and Warehousing (a)		746,837		7	%		717,746		7	%		700,698		6	%		702,615		7	%		651,869		6	%
Wholesale Trade (a)		657,685		6	%		602,052		6	%		559,638		5	%		523,839		5	%		536,791		5	%
Construction		645,107		6	%		643,932		6	%		582,761		5	%		632,592		6	%		626,013		6	%
Finance and Insurance		595,373		5	%		605,663		6	%		524,836		5	%		460,803		4	%		437,547		4	%
Other Services (except Public Administration)		450,153		4	%		436,390		4	%		391,040		4	%		382,737		4	%		371,913		4	%
Professional, Scientific, and Technical Services (a)		421,999		4	%		462,984		4	%		439,153		4	%		440,727		4	%		433,169		4	%
Accommodation and Food Services		410,754		4	%		383,087		3	%		331,604		3	%		366,240		3	%		357,693		3	%
Educational Services		353,803		3	%		359,997		3	%		430,238		4	%		437,484		4	%		440,272		4	%
Other (a)		772,649		7	%		795,851		7	%		918,407		9	%		830,527		8	%		857,988		9	%
Total commercial & industrial loans	$	11,171,754		100	%	$	11,078,349		100	%	$	10,739,155		100	%	$	10,644,755		100	%	$	10,521,765		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 $1.1 billion at March 31, 2019 and December 31, 2018, $0.9 billion at September 30, 2018, $1.0 billion at June 30, 2018, and $1.1 billion at March 31, 2018.

Commercial real estate – income producing loans totaled approximately $2.6 billion at March 31, 2019, an increase of $222 million, or 9%, from December 31, 2018. The increase reflects the transfer of loans from construction to permanent financing, as well as new production that included increases for senior care facilities, multifamily properties and retail properties. The following table details for the preceding five quarters the end-of-period commercial real estate – income producing loan balances by property type.

	March 31,					December 31,					September 30,					June 30,					March 31,
	2019					2018					2018					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	$	542,904		21	%	$	507,129		22	%	$	499,395		22	%	$	502,809		22	%	$	521,607		22	%
Office		436,819		17	%		444,973		19	%		421,965		18	%		430,319		18	%		436,789		18	%
Hotel/Motel		377,674		15	%		374,430		16	%		346,735		15	%		332,411		14	%		336,724		14	%
Multifamily		369,041		14	%		332,145		14	%		333,144		15	%		347,732		15	%		379,932		16	%
Industrial		353,804		14	%		311,933		13	%		285,292		12	%		279,041		12	%		270,812		11	%
Other		483,152		19	%		371,169		16	%		425,168		18	%		449,880		19	%		448,998		19	%
Total commercial real estate - income producing loans	$	2,563,394		100	%	$	2,341,779		100	%	$	2,311,699		100	%	$	2,342,192		100	%	$	2,394,862		100	%

Construction and land development loans, totaling approximately $1.3 billion at March 31, 2019, decreased $208.3 million from December 31, 2018. The decrease was primarily due to the reclassification of loans from construction and land development loans to commercial real estate loans as noted above. Residential mortgages increased $23.2 million and consumer loans decreased $43.5 million during the first quarter of 2019.

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Allowance for Loan Losses and Asset Quality

The Company's total allowance for loan losses was $194.7 million at March 31, 2019 virtually unchanged from December 31, 2018 and down $16.0 million compared to March 31, 2018. The ratio of the allowance for loan losses to period-end loans of 0.97% at March 31, 2019 was unchanged from December 31, 2018. The allowance for loan losses at March 31, 2019 compared to December 31, 2018 reflects a net build in the commercial nonenergy portfolio of $3.0 million, partially offset by a net release of $1.7 million in the energy portfolio. The consumer and residential mortgage allowances had releases of $0.9 million and $0.2 million, respectively. The relatively flat allowance reflects the favorable impact of improvement in criticized levels and other credit metrics across most of the loan portfolios, offset by slightly elevated loss coverage ratios in the commercial portfolio as we continue to grow and diversify that portfolio. Energy performance continues to be stable with increasing oil prices and a continued decline in criticized levels compared to prior quarter.

The Company’s balance of criticized commercial loans totaled $584 million at March 31, 2019, down $41 million, or 7%, compared to December 31, 2018, with $26 million of the decrease attributable to the commercial nonenergy portfolio and $15 million attributable to the energy portfolio. Commercial criticized loans are down $500 million, or 46%, compared to first quarter of 2018, with $259 million of the decrease attributable to the energy portfolio and $241 million attributable to the commercial nonenergy 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 $320 million at March 31, 2019, is comprised of loans that are diversified as to both industry and geography. Commercial nonenergy criticized loans comprised 2.12% of that portfolio at March 31, 2019, compared to 2.31% at December 31, 2018 and 3.91% at March 31, 2018. As of March 31, 2019, criticized loans in the energy portfolio were $264 million, or approximately 25% of that portfolio.

Management continues to closely monitor the ability of our energy-related customers to service their debt, including reviews of customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics. We believe we are adequately reserved for losses on remaining credits, and do not expect a significant provision for any additional issues. The Company has recorded approximately $95 million in energy charge-offs during the latest down cycle that began in late 2014.

Net charge- offs were $17.9 million, or 0.36%, of average total loans on an annualized basis in the first quarter of 2019, down from $28.1 million, or 0.56% of average total loans in the fourth quarter of 2018. Commercial net charge-offs totaled $14.4 million in the first quarter of 2019 compared to $24.3 million in the fourth quarter of 2018. The first quarter net charge-offs included $10.1 million related to the alleged fraud associated with the DC Solar equipment finance credit. There were no energy net charge-offs during the first quarter of 2019 compared to $15.8 million of net charge-offs in the fourth quarter of 2018. Consumer loan net charge-offs of $3.2 million were down $1.0 million compared to the fourth quarter of 2018 and down $3.0 million compared to the first quarter 2018. The first quarter of 2018 included $1.5 million of net charge-offs related to the consumer finance subsidiary that was sold on March 9, 2018.

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

	Three Months Ended
	March 31,			December 31,			March 31,
(in thousands)	2019			2018			2018
Allowance for loan losses at beginning of period	$	194,514		$	214,550		$	217,308
Loans charged-off:
Commercial non real estate		16,344			24,668			9,335
Commercial real estate - owner-occupied		—			729			851
Total commercial & industrial		16,344			25,397			10,186
Commercial real estate - income producing		10			-			—
Construction and land development		—			69			10
Total commercial		16,354			25,466			10,196
Residential mortgages		406			29			192
Consumer		4,231			5,314			8,048
Total charge-offs		20,991			30,809			18,436
Commercial non real estate		1,926			1,151			4,146
Commercial real estate - owner-occupied		17			35			88
Total commercial & industrial		1,943			1,186			4,234
Commercial real estate - income producing		2			-			63
Construction and land development		11			28			29
Total commercial		1,956			1,214			4,326
Residential mortgages		162			325			116
Consumer		1,004			1,134			1,794
Total recoveries		3,122			2,673			6,236
Total net charge-offs		17,869			28,136			12,200
Provision for loan losses		18,043			8,100			12,253
Decrease in allowance as a result of sale of subsidiary		—			—			(6,648	)
Allowance for loan losses at end of period	$	194,688		$	194,514		$	210,713
Ratios:
Gross charge-offs to average loans		0.42	%		0.62	%		0.39	%
Recoveries to average loans		0.06	%		0.05	%		0.13	%
Net charge-offs to average loans		0.36	%		0.56	%		0.26	%
Allowance for loan losses to period-end loans		0.97	%		0.97	%		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.

	March 31,			December 31,
(in thousands)	2019			2018
Loans accounted for on a nonaccrual basis: (a)
Commercial non-real estate	$	22,933		$	26,617
Commercial non-real estate - restructured		104,060			84,036
Total commercial non-real estate		126,993			110,653
Commercial real estate - owner occupied		14,104			16,682
Commercial real estate - owner-occupied - restructured		362			213
Total commercial real estate - owner-occupied		14,466			16,895
Commercial real estate - income producing		4,205			4,991
Commercial real estate - income producing - restructured		—			—
Total commercial real estate - income producing		4,205			4,991
Construction and land development		2,002			2,134
Construction and land development - restructured		11			12
Total construction and land development		2,013			2,146
Residential mortgage		37,849			34,594
Residential mortgage - restructured		1,426			1,272
Total residential mortgage		39,275			35,866
Consumer		17,879			16,744
Consumer - restructured		—			—
Total consumer		17,879			16,744
Total nonaccrual loans	$	204,831		$	187,295
Restructured loans - still accruing:
Commercial non-real estate	$	109,872		$	130,075
Commercial real estate - owner occupied		5,928			7,286
Commercial real estate - income producing		391			398
Construction and land development		9			9
Residential mortgage		341			546
Consumer		1,037			728
Total restructured loans - still accruing		117,578			139,042
Total nonperforming loans		322,409			326,337
ORE and foreclosed assets		27,148			26,270
Total nonperforming assets (b)	$	349,557		$	352,607
Loans 90 days past due still accruing to loans (c)	$	20,308		$	5,589
Total restructured loans	$	223,437		$	224,575
Ratios:
Nonperforming assets to loans plus ORE and foreclosed assets		1.74	%		1.76	%
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due		56.81	%		58.60	%
Loans 90 days past due still accruing to loans (c)		0.10	%		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 $1.5 million and $8.7 million at March 31, 2019 and December 31, 2018, respectively.

Nonperforming assets totaled $349.6 million at March 31, 2019, down $3.1 million from December 31, 2018 and $118.8 million from March 31, 2018. Nonperforming loans decreased approximately $3.9 million compared to December 31, 2018 with a continued reduction in energy nonperforming loans of $15 million, partially offset by an increase in commercial nonenergy nonperforming loans of $11 million. Our nonperforming loans included $117.8 million of accruing restructured loans, or approximately one-third of total nonperforming loans, most within energy credits that endured challenges during the energy cycle. Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 1.74% at March 31, 2019, down 2 bps from December 31, 2018 and 71 bps from March 31, 2018.

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Short-Term Investments

Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, were $163.8 million at March 31, 2019. This represents an increase of $52.7 million from December 31, 2018 and an increase of $102.2 million from March 31, 2018. These assets are volatile on a daily basis depending upon movement in customer loan and deposit accounts. Average short-term investments of $216.2 million for the first quarter of 2019 were up $10.4 million compared to the fourth quarter of 2018, and up $67.9 million compared to the first 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 $23.4 billion at March 31, 2019, up $230.1 million, or 1%, from December 31, 2018, and up $894.6 million, or 4%, from March 31, 2018. Average deposits for the first quarter of 2019 were $23.1 billion, up $616.0 million, or 3%, from the fourth quarter of 2018 and up $1.1 billion, or 5%, from the first quarter of 2018.

Noninterest-bearing demand deposits were $8.2 billion at March 31, 2019, down $340.4 million, or 4%, compared to December 31, 2018, and down $71.4 million, or 1%, compared to March 31, 2018. Noninterest-bearing demand deposits comprised 35% of total deposits at March 31, 2019, and 37% at December 31, 2018 and March 31, 2018.

Interest-bearing transaction and savings accounts of $8.2 billion at March 31, 2019 increased $224 million, or 3%, compared to December 31, 2018 and increased $165.4 million, or 2%, compared to March 31, 2018, with the year-over-year increase mainly attributable to customer deposits assumed in the trust and asset management acquisition.

Interest-bearing public fund deposits totaled $3.2 billion at March 31, 2019, up $223.1 million, or 7%, from December 31, 2018, primarily due to both new and enhanced business relationships, and up $121.6 million, or 4%, compared to March 31, 2018. Time deposits other than public funds totaled $3.7 billion at March 31, 2019 up $123.3 million from December 31, 2018, driven by promotional certificate of deposit offers across our markets and a $21.2 million increase in brokered certificates of deposit. Time deposits other than public funds were up $679.0 million, or 22.0%, compared to March 31, 2018, due largely an increase in retail certificates of deposit.

Short-Term Borrowings

At March 31, 2019, short-term borrowings totaled $1.4 billion, down $200.4 million from December 31, 2018, as FHLB borrowings decreased $250.1 million and securities sold under repurchase agreements increased $49.7 million. Short-term borrowings decreased $63.4 million from March 31, 2018.

Average short-term borrowings of $1.7 billion in the first quarter of 2019 were down $645.4 million, or 28%, compared to the fourth quarter of 2018, and down $138.1 million, or 8%, compared to the first quarter of 2018. The decrease compared to prior periods 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.

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

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. 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.

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OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

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

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 March 31, 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	$	7,198,032	$	3,275,846	$	1,543,306	$	1,456,399	$	922,481
Letters of credit		336,419		250,652		35,805		49,962		—
Total	$	7,534,451	$	3,526,498	$	1,579,111	$	1,506,361	$	922,481

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.

NEW ACCOUNTING PRONOUNCEMENTS

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

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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 March 31, 2019. Shifts are measured in 100 basis point increments in a range from -500 to +500 basis points from base case, with -200 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. 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)
-200		(9.96	)%		(13.82	)%
-100		(4.27	)%		(5.69	)%
+100		3.10	%		3.92	%
+200		5.77	%		7.13	%
+300		8.12	%		9.80	%

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.

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.

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 March 31, 2019, the Company’s disclosure controls and procedures were effective.

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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 March 31, 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	XBRL Interactive Data	X

Table of Contents

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 & Chief Accounting Officer (Principal Accounting Officer)

		May 7, 2019