HWC 10-Q Quarterly Report June 30, 2014

HWC 10-Q Quarter ended June 30, 2014

HANCOCK WHITNEY CORP

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10-Q 1 d750426d10q.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

¨	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 0-13089

HANCOCK HOLDING COMPANY

(Exact name of registrant as specified in its charter)


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

One Hancock Plaza, P.O. Box 4019, Gulfport, Mississippi		39502
(Address of principal executive offices)		(Zip Code)

(228) 868-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

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

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

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

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

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

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

81,861,999 common shares were outstanding as of August 1, 2014.

Hancock Holding Company

Index


		Page Number
Part I. Financial Information

ITEM 1.	Financial Statements

	Consolidated Balance Sheets — June 30, 2014 (unaudited) and December 31, 2013		1

	Consolidated Statements of Income (unaudited) — Three and six months ended June 30, 2014 and 2013		2

	Consolidated Statements of Comprehensive Income (unaudited) — Three and six months ended June 30, 2014 and 2013		3

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Six months ended June 30, 2014 and 2013		4

	Consolidated Statements of Cash Flows (unaudited) — Six months ended June 30, 2014 and 2013		5

	Notes to Consolidated Financial Statements (unaudited) — June 30, 2014		6-46

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		47-70

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		71

ITEM 4.	Controls and Procedures		72

Part II. Other Information

ITEM 1.	Legal Proceedings		72

ITEM 1A.	Risk Factors		72

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		72

ITEM 3.	Default on Senior Securities		N/A

ITEM 4.	Mine Safety Disclosures		N/A

ITEM 5.	Other Information		N/A

ITEM 6.	Exhibits		73

Signatures			74

Part I. Financial Information

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)


	June 30			December 31,
	2014			2013
	unaudited
ASSETS
Cash and due from banks	$	424,609		$	348,440
Interest-bearing bank deposits		439,342			267,236
Federal funds sold		1,346			1,604
Securities available for sale, at fair value (amortized cost of $1,304,997 and $1,408,780)		1,333,401			1,421,772
Securities held to maturity (fair value of $2,355,413 and $2,576,584)		2,343,828			2,611,352
Loans held for sale		22,017			24,515
Loans		12,884,056			12,324,817
Less: allowance for loan losses		(128,672	)		(133,626	)

Loans, net		12,755,384			12,191,191

Property and equipment, net of accumulated depreciation of $183,842 and $172,798		414,783			432,346
Prepaid expenses		65,331			65,220
Other real estate, net		59,537			76,668
Accrued interest receivable		44,259			42,977
Goodwill		621,193			625,675
Other intangible assets, net		145,825			159,773
Life insurance contracts		389,398			381,437
FDIC loss share receivable		90,255			113,834
Deferred tax asset, net		61,116			89,708
Other assets		137,807			155,503

Total assets	$	19,349,431		$	19,009,251

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	5,723,663		$	5,530,253
Interest-bearing transaction, savings, money market and time		9,521,564			9,830,263

Total deposits		15,245,227			15,360,516

Short-term borrowings		1,063,664			657,960
Long-term debt		374,991			385,826
Accrued interest payable		4,090			4,353
Other liabilities		168,877			175,527

Total liabilities		16,856,849			16,584,182

Stockholders’ equity
Common stock—$3.33 par value per share; 350,000,000 shares authorized, 81,860,299 and 82,237,162 issued and outstanding, respectively		272,595			273,850
Capital surplus		1,566,336			1,558,432
Retained earnings		676,942			628,166
Accumulated other comprehensive (loss), net		(23,291	)		(35,379	)

Total stockholders’ equity		2,492,582			2,425,069

Total liabilities and stockholders’ equity	$	19,349,431		$	19,009,251

See notes to consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014			2013
Interest income:
Loans, including fees	$	151,755		$	156,651	$	302,932		$	320,633
Securities-taxable		21,069			21,520		43,777			40,924
Securities-tax exempt		965			1,198		1,992			2,439
Federal funds sold and other short term investments		212			280		440			925

Total interest income		174,001			179,649		349,141			364,921

Interest expense:
Deposits		5,251			6,189		10,603			12,934
Short-term borrowings		822			1,055		1,871			2,374
Long-term debt and other interest expense		3,150			3,226		6,327			6,419

Total interest expense		9,223			10,470		18,801			21,727

Net interest income		164,778			169,179		330,340			343,194
Provision for loan losses		6,691			8,257		14,654			17,835

Net interest income after provision for loan losses		158,087			160,922		315,686			325,359

Noninterest income:
Service charges on deposit accounts		19,269			19,864		37,981			38,879
Trust fees		11,499			9,803		21,737			18,495
Bank card and ATM fees		11,596			11,399		22,165			22,457
Investment and annuity fees		5,097			5,192		10,049			9,769
Secondary mortgage market operations		1,758			4,139		3,723			8,522
Insurance commissions and fees		1,888			4,845		5,632			8,839
Amortization of FDIC loss share receivable		(3,321	)		—		(7,229	)		—
Other income		8,612			8,655		19,039			17,123

Total noninterest income		56,398			63,897		113,097			124,084

Noninterest expense:
Compensation expense		68,528			71,327		135,693			142,678
Employee benefits		12,588			16,268		26,855			32,844

Personnel expense		81,116			87,595		162,548			175,522

Net occupancy expense		10,869			12,404		22,135			24,730
Equipment expense		4,065			4,919		8,339			10,220
Data processing expense		12,887			12,781		25,306			24,315
Professional services expense		9,179			8,726		15,588			16,672
Amortization of intangibles		6,744			7,431		13,782			14,986
Telecommunications and postage		3,863			5,059		7,446			9,087
Deposit insurance and regulatory fees		2,743			4,200		5,710			7,846
Other real estate expense, net		84			3,355		1,861			4,063
Other expense		25,308			15,780		41,125			34,411

Total noninterest expense		156,858			162,250		303,840			321,852

Income before income taxes		57,627			62,569		124,943			127,591
Income taxes		17,665			15,707		35,866			32,153

Net income	$	39,962		$	46,862	$	89,077		$	95,438

Basic earnings per common share	$	0.48		$	0.55	$	1.06		$	1.11

Diluted earnings per common share	$	0.48		$	0.55	$	1.06		$	1.11

Dividends paid per share	$	0.24		$	0.24	$	0.48		$	0.48

Weighted average shares outstanding-basic		81,933			83,279		82,099			84,071

Weighted average shares outstanding-diluted		82,174			83,357		82,348			84,153

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014		2013			2014		2013
Net income	$	39,962	$	46,862		$	89,077	$	95,438
Other comprehensive income:
Net change in unrealized gains and losses		10,898		(73,951	)		15,412		(86,389	)
Reclassification adjustment for net losses realized and included in earnings		2,148		2,353			2,201		4,282
Amortization of unrealized net gain on securities transferred to held to maturity		906		(2,659	)		1,571		(5,643	)

Other comprehensive income (loss), before income taxes		13,952		(74,257	)		19,184		(87,750	)
Income tax (benefit) expense		5,254		(27,040	)		7,096		(31,980	)

Other comprehensive income (loss) net of income taxes		8,698		(47,217	)		12,088		(55,770	)

Comprehensive income (loss)	$	48,660	$	(355	)	$	101,165	$	39,668

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share data)


													Accumulated
													Other
													Comprehensive
	Common Stock						Capital			Retained			Income (Loss),
	Shares			Amount			Surplus			Earnings			net			Total
Balance, January 1, 2013		84,847,796		$	282,543		$	1,647,638		$	546,022		$	(22,925	)	$	2,453,278

Net income		—			—			—			95,438			—			95,438
Other comprehensive income		—			—			—			—			(55,770	)		(55,770	)

Comprehensive income		—			—			—			95,438			(55,770	)		39,668
Cash dividends declared ($0.48 per common share)		—			—			—			(40,894	)		—			(40,894	)
Common stock activity, long-term incentive plan		47,621			159			8,129			—			—			8,288
Purchase of common stock		(2,817,640	)		(9,383	)		(105,617	)		—			—			(115,000	)

Balance, June 30, 2013		82,077,777		$	273,319		$	1,550,150		$	600,566		$	(78,695	)	$	2,345,340

Balance, January 1, 2014		82,237,162		$	273,850		$	1,558,432		$	628,166		$	(35,379	)	$	2,425,069

Net income		—			—			—			89,077			—			89,077
Other comprehensive income		—			—			—			—			12,088			12,088

Comprehensive income		—			—			—			89,077			12,088			101,165
Cash dividends declared ($0.48 per common share)		—			—			—			(40,301	)		—			(40,301	)
Common stock activity, long-term incentive plan		213,359			710			5,939			—			—			6,649
Purchase of common stock		(590,222	)		(1,965	)		1,965			—			—			—

Balance, June 30, 2014		81,860,299		$	272,595		$	1,566,336		$	676,942		$	(23,291	)	$	2,492,582

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	89,077		$	95,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,666			16,021
Provision for loan losses		14,654			17,835
Losses on other real estate owned		2,133			1,846
Deferred tax expense		21,495			13,134
Increase in cash surrender value of life insurance contracts		(4,601	)		(6,364	)
(Gain) loss on disposal of other assets		(265	)		189
Net decrease in loans originated for sale		338			29,350
Net amortization of securities premium/discount		8,543			19,842
Amortization of intangible assets		13,782			14,986
Amortization of FDIC indemnification asset		7,229			—
Stock-based compensation expense		7,120			7,026
Decrease in interest payable and other liabilities		(10,085	)		(5,021	)
Funds collected under FDIC loss share agreements		—			33,919
(Increase) decrease in FDIC loss share receivable		8,730			(5,499	)
Decrease in other assets		6,260			40,522
Other, net		4,010			(230	)

Net cash provided by operating activities		184,086			272,994

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale		1,301			—
Proceeds from maturities of securities available for sale		145,812			368,016
Purchases of securities available for sale		(48,404	)		(1,017,619	)
Proceeds from maturities of securities held to maturity		266,657			295,922
Purchases of securities held to maturity		(1,031	)		(345,644	)
Net (increase) decrease in interest-bearing bank deposits		(172,106	)		1,058,901
Net decrease (increase) in federal funds sold and short-term investments		258			(1,630	)
Net increase in loans		(581,169	)		(147,380	)
Purchases of property and equipment		(10,881	)		(18,601	)
Proceeds from sales of property and equipment		6,946			250
Proceeds from sales of other real estate		29,688			56,826
Other, net		14,873			(3,726	)

Net cash provided by (used in) investing activities		(348,056	)		245,315

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits		(115,289	)		(588,250	)
Net increase in short-term borrowings		405,704			188,974
Repayments of long-term debt		(17,756	)		(17,645	)
Issuance of long-term debt		6,921			6,178
Dividends paid		(40,301	)		(40,894	)
Repurchase of common stock		—			(115,000	)
Proceeds from exercise of stock options		860			399

Net cash provided by (used in) financing activities		240,139			(566,238	)

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS		76,169			(47,929	)
CASH AND DUE FROM BANKS, BEGINNING		348,440			448,491

CASH AND DUE FROM BANKS, ENDING	$	424,609		$	400,562

SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans	$	15,299		$	27,048

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The consolidated financial statements include the accounts of Hancock Holding Company and all other entities in which it has a controlling interest (the “Company”). The financial statements include all adjustments that are, in the opinion of management, necessary to present fairly the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented. Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

Use of Estimates

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

Critical Accounting Policies and Estimates

Income Taxes

Income taxes are accounted for using the asset and liability method. Current tax liabilities or assets are recognized for the estimated income taxes payable or refundable on tax returns to be filed with respect to the current year. Deferred tax assets and liabilities are based on temporary differences between the financial statement carrying amounts and the tax bases of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances are established against deferred tax assets if, based on all available evidence, it is more likely than not that some or all of the assets will not be realized. The benefit of a position taken or expected to be taken in a tax return is recognized when it is more likely than not that the position will be sustained on its technical merits.

The Company invests in projects that yield tax credits issued under the Qualified Zone Academy Bonds (QZAB), Qualified School Construction Bonds (QSCB), Federal and State New Market Tax Credit (NMTC), and Low-Income Housing Tax Credit (LIHTC) programs. Returns on these investments are generated through the receipt of federal and state tax credits. The tax credits are recorded as a reduction to the income tax provision in the year that they are earned. Tax credits from QZAB and QSCB bonds are generally earned over the life of the bonds in lieu of interest income. Credits on Federal NMTC investments are earned over the seven-year compliance period beginning with the year of investment. Credits on State NMTC investments are generally earned over a three- to five- year period depending upon the specific state program. Tax Credits for Low-Income Housing investments are earned over a ten-year period beginning with the year in which rental activity begins. These tax credits, if not used in the tax return for the year when the credits are first available for use, can be carried forward for 20 years. For those investments where the return of the principal is not expected, the equity investment is amortized over the life of the tax compliance period as a component of noninterest expense.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation (continued)

Reportable Segment Disclosures

Accounting standards require that information be reported about a company’s operating segments using a “management approach.” Reportable segments are identified in these standards as those revenue-producing components for which separate financial information is produced internally and which are subject to evaluation by the chief operating decision maker in deciding how to allocate resources to segments. On March 31, 2014, the Company combined its two state bank charters into one charter. Due to the charter change and consistent with its stated strategy that is focused on providing a consistent package of community banking products and services across all markets, the Company has identified its overall banking operations as its only reportable segment. Because the overall banking operations comprise substantially all of the consolidated operations, no separate segment disclosures are presented.

There were no other 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, 2013.

2. Securities

The amortized cost and fair value of securities classified as available for sale and held to maturity follow (in thousands):

Securitites Available for Sale


	June 30, 2014								December 31, 2013
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
US Treasury and government agency securities	$	283	$	—	$	1	$	282	$	504	$	2	$	1	$	505
Municipal obligations		20,539		298		—		20,837		35,809		177		25		35,961
Mortgage-backed securities		1,179,186		33,044		4,105		1,208,125		1,262,633		24,402		10,077		1,276,958
CMOs		92,669		—		1,721		90,948		96,369		—		2,244		94,125
Corporate debt securities		3,500		—		—		3,500		3,500		—		—		3,500
Equity securities		8,820		890		1		9,709		9,965		785		27		10,723

	$	1,304,997	$	34,232	$	5,828	$	1,333,401	$	1,408,780	$	25,366	$	12,374	$	1,421,772


Securitites Held to Maturity
	June 30, 2014								December 31, 2013
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
US Treasury and government agency securities	$	—	$	—	$	—	$	—	$	100,000	$	316	$	—	$	100,316
Municipal obligations		185,132		2,631		1,922		185,841		193,189		919		6,436		187,672
Mortgage-backed securities		954,070		19,481		693		972,858		1,003,327		296		4,671		998,952
CMOs		1,204,626		5,405		13,317		1,196,714		1,314,836		1,062		26,254		1,289,644

	$	2,343,828	$	27,517	$	15,932	$	2,355,413	$	2,611,352	$	2,593	$	37,361	$	2,576,584

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities (continued)

The following table presents the amortized cost and fair value of debt securities at June 30, 2014 by contractual maturity (in thousands). 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 CMOs.


	Amortized Cost		Fair Value
	Amortized Cost		Fair Value
Debt Securities Available for Sale
Due in one year or less	$	12,872	$	12,906
Due after one year through five years		162,474		162,602
Due after five years through ten years		171,206		178,164
Due after ten years		949,625		970,020

Total available for sale debt securities	$	1,296,177	$	1,323,692


	Amortized Cost		Fair Value
	Amortized Cost		Fair Value
Debt Securities Held to Maturity
Due in one year or less	$	5,940	$	5,969
Due after one year through five years		655,817		646,032
Due after five years through ten years		106,088		104,789
Due after ten years		1,575,983		1,598,623

Total held to maturity securities	$	2,343,828	$	2,355,413

The Company held no securities classified as trading at June 30, 2014 or December 31, 2013.

The details for securities classified as available for sale with unrealized losses for the periods indicated follow (in thousands):


	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2014	Value		Losses		Value		Losses		Value		Losses
US Treasury and government agency securities	$	144	$	1	$	35	$	—	$	179	$	1
Municipal obligations		—		—		—		—		—		—
Mortgage-backed securities		19,753		70		130,591		4,035		150,344		4,105
CMOs		49,381		522		41,567		1,199		90,948		1,721
Equity securities		—		—		3		1		3		1

	$	69,278	$	593	$	172,196	$	5,235	$	241,474	$	5,828

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities (continued)


	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2013	Value		Losses		Value		Losses		Value		Losses
US Treasury and government agency securities	$	205	$	1	$	—	$	—	$	205	$	1
Municipal obligations		7,975		25		—		—		7,975		25
Mortgage-backed securities		376,350		7,164		49,061		2,913		425,411		10,077
CMOs		94,125		2,244		—		—		94,125		2,244
Corporate debt securities		—		—		—		—		—
Equity securities		3,282		26		3		1		3,285		27

	$	481,937	$	9,460	$	49,064	$	2,914	$	531,001	$	12,374

The details for securities classified as held to maturity with unrealized losses for the periods indicated follow (in thousands):


	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2014	Value		Losses		Value		Losses		Value		Losses
Municpal obligations	$	495	$	5	$	60,099	$	1,917	$	60,594	$	1,922
Mortgage-backed securities		—		—		134,550		693		134,550		693
CMOs		206,634		2,452		649,544		10,865		856,178		13,317

	$	207,129	$	2,457	$	844,193	$	13,475	$	1,051,322	$	15,932


	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2013	Value		Losses		Value		Losses		Value		Losses
Municpal obligations	$	131,499	$	6,311	$	2,878	$	125	$	134,377	$	6,436
Mortgage-backed securities		950,288		4,671		—		—		950,288		4,671
CMOs		947,061		25,088		175,633		1,166		1,122,694		26,254

	$	2,028,848	$	36,070	$	178,511	$	1,291	$	2,207,359	$	37,361

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities (continued)

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

Securities with carrying values totaling $2.9 billion at June 30, 2014 and $3.1 billion at December 31, 2013 were pledged primarily to secure public deposits or securities sold under agreements to repurchase.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses

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


	June 30,		December 31,
	2014		2013
	(In thousands)
Originated loans:
Commercial non-real estate	$	4,610,696	$	4,113,837
Construction and land development		903,610		752,381
Commercial real estate		2,173,006		2,022,528
Residential mortgages		1,469,977		1,196,256
Consumer		1,501,163		1,409,130

Total originated loans	$	10,658,452	$	9,494,132

Acquired loans:
Commercial non-real estate	$	769,159	$	926,997
Construction and land development		119,847		142,931
Commercial real estate		836,646		967,148
Residential mortgages		111,724		315,340
Consumer		84,403		119,603

Total acquired loans	$	1,921,779	$	2,472,019

Covered loans:
Commercial non-real estate	$	13,836	$	23,390
Construction and land development		17,199		20,229
Commercial real estate		46,611		53,165
Residential mortgages		189,570		209,018
Consumer		36,609		52,864

Total covered loans	$	303,825	$	358,666

Total loans:
Commercial non-real estate	$	5,393,691	$	5,064,224
Construction and land development		1,040,656		915,541
Commercial real estate		3,056,263		3,042,841
Residential mortgages		1,771,271		1,720,614
Consumer		1,622,175		1,581,597

Total loans	$	12,884,056	$	12,324,817

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

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

Originated loans

Loans originated for investment are reported at the principal balance outstanding net of unearned income. Interest on loans and accretion of unearned income, including deferred loan fees, are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recognized as income as earned.

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

Acquired loans

Acquired loans are those purchased in the Whitney Holding Corporation acquisition on June 4, 2011. These loans were recorded at their estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated between those considered to be performing (“acquired-performing”) and those with evidence of credit deterioration (“acquired-impaired”), based on such factors as past due status, nonaccrual status and credit risk ratings (rated substandard or worse). The acquired loans were further segregated into loan pools designed to facilitate the development of expected cash flows to be used in estimating their fair value.

Acquired-performing loans were segregated into pools based on characteristics such as loan type, credit risk ratings, and contractual interest rate and repayment terms. The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, residential mortgage loans, and consumer loans, with further segregation within certain loan types as appropriate. Aggregate cash flows, both principal and interest, expected to be generated by each loan pool were estimated based on key assumptions covering such factors as prepayments, default rates, and severity of loss given a default. These assumptions were developed using both Whitney Holding Corporation’s historical experience and the portfolio characteristics at acquisition as well as available market research.

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

Acquired-impaired loans were segregated into pools by identifying loans with similar credit risk profiles based primarily on characteristics such as loan type and market area in which originated. Loan types included most of the major types used for the acquired-performing portfolio. The acquired-impaired loans that had been originated in Louisiana and Texas were further disaggregated from loans originated in Mississippi, Alabama and Florida, in recognition of the differences in general economic conditions affecting borrowers in these market areas. The fair value estimate for each pool of acquired-performing and acquired-impaired loans was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The excess of estimated cash flows expected to be collected from an acquired-impaired loan pool over the pool’s carrying value is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the loan pool. Each pool of acquired-impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Acquired-impaired loans in pools with an accretable yield and expected cash flows that are reasonably estimable are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting. Management recasts the estimate of cash flows expected to be collected on each acquired-impaired loan pool at each reporting date. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool. Acquired-impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings even if they would otherwise qualify for such treatment.

Covered loans and the related loss share receivable

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

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

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The following schedule shows activity in the loss share receivable for the six months ended June 30, 2014 and 2013 (in thousands):


	Six Months Ended
	June 30,			June 30,
	2014			2013
Balance, January 1	$	113,834		$	177,844
Amortization		(7,229	)		—
Charge-offs, write-downs and other losses (recoveries)		(1,048	)		(1,209	)
External expenses qualifying under loss share agreement		2,841			6,307
Changes due to changes in cash flow projections		(7,875	)		2,877
Settlement of disallowed loss claims		(10,268	)		—
Payments received from the FDIC		—			(33,919	)

Ending balance	$	90,255		$	151,900

The loss share agreements contain specific terms and conditions regarding the management of the covered assets that the Company must follow in order to receive reimbursement for losses from the FDIC. During the second quarter of 2014, the Company reached a settlement agreement to reimburse the FDIC $10.3 million for certain claims previously received under the agreements. The disagreement arose from a targeted review of the Company’s compliance with the terms of the agreements and related to the matter in which certain assets were administered and losses were calculated. The FDIC had suspended processing the Company’s claims as of September 2013 pending settlement of these issues and outstanding claims. The total due from the FDIC for the period September 2013 through May 2014 is $25 million. The Company will submit its claims for that period, net of the $10.3 million reimbursement.

The following schedule shows activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2014 and June 30, 2013 as well as the corresponding recorded investment in loans at the end of each period.


				Construction
	Commercial			and land			Commercial			Residential
	non-real estate			development			real estate			mortgages			Consumer			Total
( In thousands )	Six Months Ended June 30, 2014
Originated loans
Allowance for loan losses:
Beginning balance	$	33,091		$	6,180		$	20,649		$	6,892		$	12,073		$	78,885
Charge-offs		(3,658	)		(1,041	)		(1,373	)		(1,097	)		(7,622	)		(14,791	)
Recoveries		1,411			1,064			1,057			363			2,854			6,749
Net provision for loan losses		5,937			699			(5,060	)		772			5,381			7,729

Ending balance	$	36,781		$	6,902		$	15,273		$	6,930		$	12,686		$	78,572

Ending balance:
Individually evaluated for impairment	$	640		$	259		$	116		$	532		$	—		$	1,547
Collectively evaluated for impairment		36,141			6,643			15,157			6,398			12,686			77,025
Loans:
Ending balance:	$	4,610,696		$	903,610		$	2,173,006		$	1,469,977		$	1,501,163		$	10,658,452
Individually evaluated for impairment		6,765			6,702			11,198			2,532			—			27,197
Collectively evaluated for impairment		4,603,931			896,908			2,161,808			1,467,445			1,501,163			10,631,255

Acquired loans
Allowance for loan losses:
Beginning balance	$	1,603		$	10		$	34		$	—		$	—		$	1,647
Charge-offs		—			—			—			—			—			—
Recoveries		—			—			—			—			—			—
Net provision for loan losses		6,135			210			630			14			311			7,300

Ending balance	$	7,738		$	220		$	664		$	14		$	311		$	8,947

Ending balance:
Individually evaluated for impairment	$	65		$	24		$	188		$	—		$	—		$	277
Amounts related to acquired-impaired loans		—			—			—			—			—			—
Collectively evaluated for impairment		7,673			196			476			14			311			8,670
Loans:
Ending balance:	$	769,159		$	119,847		$	836,646		$	111,724		$	84,403		$	1,921,779
Individually evaluated for impairment		1,957			739			2,280			—			—			4,976
Acquired-impaired loans		17,410			18,976			27,993			4,547			1,057			69,983
Collectively evaluated for impairment		749,792			100,132			806,373			107,177			83,346			1,846,820

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


				Construction
	Commercial			and land			Commercial			Residential
	non-real estate			development			real estate			mortgages			Consumer			Total
( In thousands )	Six Months Ended June 30, 2014
Covered loans
Allowance for loan losses:
Beginning balance	$	2,323		$	2,655		$	10,929		$	27,989		$	9,198		$	53,094
Charge-offs		(70	)		(624	)		(4,022	)		(730	)		(1,130	)		(6,576	)
Recoveries		451			896			1,371			19			148			2,885
Net provision for loan losses		(57	)		(73	)		30			(173	)		(102	)		(375	)
Increase (Decrease) in FDIC loss share receivable		(1,099	)		(1,302	)		225			(3,442	)		(2,257	)		(7,875	)

Ending balance	$	1,548		$	1,552		$	8,533		$	23,663		$	5,857		$	41,153

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—
Amounts related to acquired-impaired loans		1,548			1,552			8,533			23,663			5,857			41,153
Collectively evaluated for impairment		—			—			—			—			—			—
Loans:
Ending balance:	$	13,836		$	17,199		$	46,611		$	189,570		$	36,609		$	303,825
Individually evaluated for impairment		—			—			—			—			—			—
Acquired-impaired loans		13,836			17,199			46,611			189,570			36,609			303,825
Collectively evaluated for impairment		—			—			—			—			—			—

Total loans
Allowance for loan losses:
Beginning balance	$	37,017		$	8,845		$	31,612		$	34,881		$	21,271		$	133,626
Charge-offs		(3,728	)		(1,665	)		(5,395	)		(1,827	)		(8,752	)		(21,367	)
Recoveries		1,862			1,960			2,428			382			3,002			9,634
Net provision for loan losses		12,015			836			(4,400	)		613			5,590			14,654
Increased (Decrease) in FDIC loss share receivable		(1,099	)		(1,302	)		225			(3,442	)		(2,257	)		(7,875	)

Ending balance	$	46,067		$	8,674		$	24,470		$	30,607		$	18,854		$	128,672

Ending balance:
Individually evaluated for impairment	$	705		$	283		$	304		$	532		$	—		$	1,824
Amounts related to acquired-impaired loans		1,548			1,552			8,533			23,663			5,857			41,153
Collectively evaluated for impairment		43,814			6,839			15,633			6,412			12,997			85,695
Loans:
Ending balance:	$	5,393,691		$	1,040,656		$	3,056,263		$	1,771,271		$	1,622,175		$	12,884,056
Individually evaluated for impairment		8,722			7,441			13,478			2,532			—			32,173
Acquired-impaired loans		31,246			36,175			74,604			194,117			37,666			373,808
Collectively evaluated for impairment		5,353,723			997,040			2,968,181			1,574,622			1,584,509			12,478,075

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
(In thousands)	Six Months Ended June 30, 2013
Originated loans
Allowance for loan losses:
Beginning balance	$	20,775		$	11,415		$	26,959		$	6,406		$	13,219		$	78,774
Charge-offs		(4,200	)		(6,365	)		(2,871	)		(902	)		(8,350	)		(22,688	)
Recoveries		2,338			1,037			1,512			895			3,241			9,023
Net provision for loan losses		11,514			1,644			(6,596	)		319			4,409			11,290

Ending balance	$	30,427		$	7,731		$	19,004		$	6,718		$	12,519		$	76,399

Ending balance:
Individually evaluated for impairment	$	574		$	—		$	1,428		$	2		$	10		$	2,014
Collectively evaluated for impairment		29,853			7,731			17,576			6,716			12,509			74,385
Loans:
Ending balance:	$	3,564,008		$	722,649		$	1,638,409		$	988,595		$	1,340,094		$	8,253,755
Individually evaluated for impairment		9,986			—			39,694			864			4,153			54,697
Collectively evaluated for impairment		3,554,022			722,649			1,598,715			987,731			1,335,941			8,199,058

Acquired loans
Allowance for loan losses:
Beginning balance	$	788		$	—		$	—		$	—		$	—		$	788
Charge-offs		—			—			—			—			—			—
Recoveries		—			—			—			—			—			—
Net provision for loan losses		(743	)		8			317			—			—			(418	)

Ending balance	$	45		$	8		$	317		$	—		$	—		$	370

Ending balance:
Individually evaluated for impairment	$	45		$	8		$	317		$	—		$	—		$	370
Amounts related to acquired-impaired loans		—			—			—			—			—			—
Collectively evaluated for impairment		—			—			—			—			—			—
Loans:
Ending balance:	$	1,062,916		$	217,611		$	1,161,500		$	392,282		$	162,722		$	2,997,031
Individually evaluated for impairment		6,484			787			2,727			511			—			10,509
Acquired-impaired loans		20,828			15,530			49,218			9,193			387			95,156
Collectively evaluated for impairment		1,035,604			201,294			1,109,555			382,578			162,335			2,891,366

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
(In thousands)	Six Months Ended June 30, 2013
Covered loans
Allowance for loan losses:
Beginning balance	$	2,162		$	5,623		$	9,433		$	30,471		$	8,920		$	56,609
Charge-offs		(681	)		(2,321	)		(2,121	)		(516	)		(1,091	)		(6,730	)
Recoveries		90			484			878			2			28			1,482
Net provision for loan losses		404			(367	)		1,707			635			4,584			6,963
Increase in FDIC loss share receivable		233			37			752			625			1,229			2,876

Ending balance	$	2,208		$	3,456		$	10,649		$	31,217		$	13,670		$	61,200

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—
Amounts related to acquired-impaired loans		2,208			3,456			10,649			31,217			13,670			61,200
Collectively evaluated for impairment		—			—			—			—			—			—
Loans:
Ending balance:	$	26,418		$	26,239		$	72,345		$	235,216		$	70,493		$	430,711
Individually evaluated for impairment		—			—			—			—			—			—
Acquired-impaired loans		26,418			26,239			72,345			235,216			70,493			430,711
Collectively evaluated for impairment		—			—			—			—			—			—

Total loans
Allowance for loan losses:
Beginning balance	$	23,725		$	17,038		$	36,392		$	36,877		$	22,139		$	136,171
Charge-offs		(4,881	)		(8,686	)		(4,992	)		(1,418	)		(9,441	)		(29,418	)
Recoveries		2,428			1,521			2,390			897			3,269			10,505
Net provision for loan losses		11,175			1,285			(4,572	)		954			8,993			17,835
Increase in FDIC loss share receivable		233			37			752			625			1,229			2,876

Ending balance	$	32,680		$	11,195		$	29,970		$	37,935		$	26,189		$	137,969

Ending balance:
Individually evaluated for impairment	$	619		$	8		$	1,745		$	2		$	10		$	2,384
Amounts related to acquired-impaired loans		2,208			3,456			10,649			31,217			13,670			61,200
Collectively evaluated for impairment		29,853			7,731			17,576			6,716			12,509			74,385
Loans:
Ending balance:	$	4,653,342		$	966,499		$	2,872,254		$	1,616,093		$	1,573,309		$	11,681,497
Individually evaluated for impairment		16,470			787			42,421			1,375			4,153			65,206
Acquired-impaired loans		47,246			41,769			121,563			244,409			70,880			525,867
Collectively evaluated for impairment		4,589,626			923,943			2,708,270			1,370,309			1,498,276			11,090,424

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

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


	June 30,		December 31,
Nonaccrual Loans	2014		2013
	(In thousands)
Originated loans:
Commercial non-real estate	$	12,150	$	10,119
Construction and land development		7,749		13,171
Commercial real estate		27,753		32,772
Residential mortgages		19,157		13,449
Consumer		4,679		4,802

Total originated loans	$	71,488	$	74,313

Acquired loans:
Commercial non-real estate	$	2,983	$	3,209
Construction and land development		1,763		1,990
Commercial real estate		5,737		6,525
Residential mortgages		2,946		8,262
Consumer		1,664		1,814

Total acquired loans	$	15,093	$	21,800

Covered loans:
Commercial non-real estate	$	—	$	2
Construction and land development		1,539		1,539
Commercial real estate		1,107		1,163
Residential mortgages		396		544
Consumer		278		296

Total covered loans	$	3,320	$	3,544

Total loans:
Commercial non-real estate	$	15,133	$	13,330
Construction and land development		11,051		16,700
Commercial real estate		34,597		40,460
Residential mortgages		22,499		22,255
Consumer		6,621		6,912

Total loans	$	89,901	$	99,657

The estimated amount of interest that would have been recorded on nonaccrual loans had the loans not been classified as nonaccrual in the six months ended June 30, 2014 was approximately $1.9 million. Interest actually received and recorded as income on nonaccrual loans during the six months ended June 30, 2014 was $1.1 million.

Nonaccrual loans include loans modified in troubled debt restructurings (TDRs) of $7.7 million. Total TDRs were $19.4 million as of June 30, 2014 and $24.9 million at December 31, 2013. Modified acquired-impaired loans are not removed from their accounting pool and accounted for as TDRs, even if those loans would otherwise be deemed TDRs.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The tables below detail TDRs that were modified during the six months ended June 30, 2014 and June 30, 2013 by portfolio segment and TDRs that subsequently defaulted within twelve months of modification (dollar amounts in thousands). All TDRs are rated substandard and individually evaluated for impairment.


	Six Months Ended
	June 30, 2014						June 30, 2013
Troubled Debt Restructurings:	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Originated loans:
Commercial non-real estate		—	$	—	$	—		1	$	926	$	921
Construction and land development		—		—		—		—		—		—
Commercial real estate		1		963		918		5		1,844		1,789
Residential mortgages		2		773		507		2		971		854
Consumer		—		—		—		—		—		—

Total originated loans		3	$	1,736	$	1,425		8	$	3,741	$	3,564

Aquired loans:
Commercial non-real estate		—	$	—	$	—		—	$	—	$	—
Construction and land development		—		—		—		—		—		—
Commercial real estate		—		—		—		1		512		501
Residential mortgages		—		—		—		1		515		493
Consumer		—		—		—		—		—		—

Total acquired loans		—	$	—	$	—		2	$	1,027	$	994

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

Total covered loans		—	$	—	$	—		—	$	—	$	—

Total loans:
Commercial non-real estate		—	$	—	$	—		1	$	926	$	921
Construction and land development		—		—		—		—		—		—
Commercial real estate		1		963		918		6		2,356		2,290
Residential mortgages		2		773		507		3		1,486		1,347
Consumer		—		—		—		—		—		—

Total loans		3	$	1,736	$	1,425		10	$	4,768	$	4,558

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Six Months Ended
	June 30, 2014				June 30, 2013
Troubled Debt Restructurings That Subsequently Defaulted:	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Originated loans:
Commercial non-real estate		1	$	909		—	$	—
Construction and land development		—		—		—		—
Commercial real estate		2		1,025		—		—
Residential mortgages		—		—		—		—
Consumer		—		—		—		—

Total originated loans		3	$	1,934		—	$	—

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

Total acquired loans		—	$	—		—	$	—

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

Total covered loans		—	$	—		—	$	—

Total loans:
Commercial non-real estate		1	$	909		—	$	—
Construction and land development		—		—		—		—
Commercial real estate		2		1,025		—		—
Residential mortgages		—		—		—		—
Consumer		—		—		—		—

Total loans		3	$	1,934		—	$	—

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

Those loans that are determined to be impaired and have balances of $1 million or more are individually evaluated for impairment. The tables below present loans that are individually evaluated for impairment disaggregated by class at June 30, 2014 and December 31, 2013:


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
June 30, 2014	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
Originated loans:
With no related allowance recorded:
Commercial non-real estate	$	2,587	$	2,791	$	—	$	987	$	13
Construction and land development		2,453		2,774		—		3,168		60
Commercial real estate		8,207		10,438		—		7,392		124
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		13,247		16,003		—		11,547		197
With an allowance recorded:
Commercial non-real estate	$	4,178	$	4,248	$	640	$	6,840		40
Construction and land development		4,249		4,767		259		8,219		32
Commercial real estate		2,991		3,279		116		9,134		29
Residential mortgages		2,532		2,696		532		2,059		—
Consumer		—		—		—		—		—

		13,950		14,990		1,547		26,252		101
Total:
Commercial non-real estate		6,765		7,039		640		7,827		53
Construction and land development		6,702		7,541		259		11,386		92
Commercial real estate		11,198		13,717		116		16,525		153
Residential mortgages		2,532		2,696		532		2,059		—
Consumer		—		—		—		—		—

Total originated loans	$	27,197	$	30,993	$	1,547	$	37,797	$	298

Acquired loans:
With no related allowance recorded:
Commercial non-real estate	$	—	$	—	$	—	$	535	$	—
Construction and land development		—		—		—		182		—
Commercial real estate		—		—		—		466		—
Residential mortgages		—		—		—		118		—
Consumer		—		—		—		—		—

		—		—		—		1,301		—
With an allowance recorded:
Commercial non-real estate		1,957		3,800		65		1,490		105
Construction and land development		739		781		24		552		18
Commercial real estate		2,280		2,339		188		1,729		43
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		4,976		6,920		277		3,771		166
Total:
Commercial non-real estate		1,957		3,800		65		2,026		105
Construction and land development		739		781		24		734		18
Commercial real estate		2,280		2,339		188		2,195		43
Residential mortgages		—		—		—		118		—
Consumer		—		—		—		—		—

Total acquired loans	$	4,976	$	6,920	$	277	$	5,073	$	166

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
June 30, 2014	Investment		Balance		Allowance		Investment		Recognized
Covered loans:
With no related allowance recorded:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	—
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		—		—		—		—		—
With an allowance recorded:
Commercial non-real estate		—		—		—		—		—
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		—		—		—		—		—
Total:
Commercial non-real estate		—		—		—		—		—
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

Total covered loans	$	—	$	—	$	—	$	—	$	—

Total loans:
With no related allowance recorded:
Commercial non-real estate	$	2,587	$	2,791	$	—	$	1,522	$	13
Construction and land development		2,453		2,774		—		3,350		60
Commercial real estate		8,207		10,438		—		7,858		124
Residential mortgages		—		—		—		118		—
Consumer		—		—		—		—		—

		13,247		16,003		—		12,848		197
With an allowance recorded:
Commercial non-real estate		6,135		8,048		705		8,331		145
Construction and land development		4,988		5,548		283		8,771		50
Commercial real estate		5,271		5,618		304		10,863		72
Residential mortgages		2,532		2,696		532		2,059		—
Consumer		—		—		—		—		—

		18,926		21,910		1,824		30,024		267
Total:
Commercial non-real estate		8,722		10,839		705		9,853		158
Construction and land development		7,441		8,322		283		12,121		110
Commercial real estate		13,478		16,056		304		18,721		196
Residential mortgages		2,532		2,696		532		2,177		—
Consumer		—		—		—		—		—

Total loans	$	32,173	$	37,913	$	1,824	$	42,872	$	464

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2013	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
Originated loans:
With no related allowance recorded:
Commercial non-real estate	$	329	$	442	$	—	$	235	$	18
Construction and land development		4,101		5,131		—		2,780		82
Commercial real estate		5,321		7,458		—		15,886		374
Residential mortgages		—		—		—		262		—
Consumer		—		—		—		1,013		—

		9,751		13,031		—		20,176		474
With an allowance recorded:
Commercial non-real estate		4,965		5,303		477		8,936		180
Construction and land development		6,498		8,343		22		2,549		—
Commercial real estate		8,708		9,090		268		19,683		460
Residential mortgages		605		620		1		228		—
Consumer		—		—		—		1,025		—

		20,776		23,356		768		32,421		640
Total:
Commercial non-real estate		5,294		5,745		477		9,171		198
Construction and land development		10,599		13,474		22		5,329		82
Commercial real estate		14,029		16,548		268		35,569		834
Residential mortgages		605		620		1		490		—
Consumer		—		—		—		2,038		—

Total originated loans	$	30,527	$	36,387	$	768	$	52,597	$	1,114

Acquired loans:
With no related allowance recorded:
Commercial non-real estate	$	2,141	$	3,275	$	—	$	865	$	8
Construction and land development		728		1,142		—		296		3
Commercial real estate		1,865		2,634		—		1,339		49
Residential mortgages		473		507		—		407		—
Consumer		—		—		—		—		—

		5,207		7,558		—		2,907		60
With an allowance recorded:
Commercial non-real estate		—		—		—		2,747		63
Construction and land development		—		—		—		157		—
Commercial real estate		—		—		—		2,663		—
Residential mortgages		—		—		—		845		—
Consumer		—		—		—		—		—

		—		—		—		6,412		63
Total:
Commercial non-real estate		2,141		3,275		—		3,612		71
Construction and land development		728		1,142		—		453		3
Commercial real estate		1,865		2,634		—		4,002		49
Residential mortgages		473		507		—		1,252		—
Consumer		—		—		—		—		—

Total acquired loans	$	5,207	$	7,558	$	—	$	9,319	$	123

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2013	Investment		Balance		Allowance		Investment		Recognized
Covered loans:
With no related allowance recorded:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	—
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		—		—		—		—		—
With an allowance recorded:
Commercial non-real estate		—		—		—		—		—
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		—		—		—		—		—
Total:
Commercial non-real estate		—		—		—		—		—
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

Total covered loans	$	—	$	—	$	—	$	—	$	—

Total loans:
With no related allowance recorded:
Commercial non-real estate	$	2,470	$	3,717	$	—	$	1,100	$	26
Construction and land development		4,829		6,273		—		3,076		85
Commercial real estate		7,186		10,092		—		17,225		423
Residential mortgages		473		507		—		669		—
Consumer		—		—		—		1,013		—

		14,958		20,589		—		23,083		534
With an allowance recorded:
Commercial non-real estate		4,965		5,303		477		11,683		243
Construction and land development		6,498		8,343		22		2,706		—
Commercial real estate		8,708		9,090		268		22,346		460
Residential mortgages		605		620		1		1,073		—
Consumer		—		—		—		1,025		—

		20,776		23,356		768		38,833		703
Total:
Commercial non-real estate		7,435		9,020		477		12,783		269
Construction and land development		11,327		14,616		22		5,782		85
Commercial real estate		15,894		19,182		268		39,571		883
Residential mortgages		1,078		1,127		1		1,742		—
Consumer		—		—		—		2,038		—

Total loans	$	35,734	$	43,945	$	768	$	61,916	$	1,237

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

Covered loans and acquired-impaired loans with an accretable yield are considered to be current in the following delinquency table. Certain covered loans accounted for using the cost recovery method are disclosed according to their contractual payment status below. The following tables present the age analysis of past due loans at June 30, 2014 and December 31, 2013:


													Recorded
					Greater than								investment
	30-59 days		60-89 days		90 days		Total				Total		> 90 days
June 30, 2014	past due		past due		past due		past due		Current		Loans		and accruing
	(In thousands)
Originated loans:
Commercial non-real estate	$	3,426	$	1,013	$	5,674	$	10,113	$	4,600,583	$	4,610,696	$	42
Construction and land development		282		434		4,162		4,878		898,732		903,610		685
Commercial real estate		4,217		3,098		13,276		20,591		2,152,415		2,173,006		444
Residential mortgages		303		4,565		6,646		11,514		1,458,463		1,469,977		—
Consumer		4,133		2,148		3,683		9,964		1,491,199		1,501,163		2,246

Total	$	12,361	$	11,258	$	33,441	$	57,060	$	10,601,392	$	10,658,452	$	3,417

Acquired loans:
Commercial non-real estate	$	448	$	210	$	2,807	$	3,465	$	765,694	$	769,159	$	3
Construction and land development		—		314		1,624		1,938		117,909		119,847		—
Commercial real estate		1,162		3,805		2,368		7,335		829,311		836,646		610
Residential mortgages		815		248		1,457		2,520		109,204		111,724		92
Consumer		339		5		774		1,118		83,285		84,403		21

Total	$	2,764	$	4,582	$	9,030	$	16,376	$	1,905,403	$	1,921,779	$	726

Covered loans:
Commercial non-real estate	$	—	$	—	$	—	$	—		13,836	$	13,836	$	—
Construction and land development		—		—		1,539		1,539		15,660		17,199		—
Commercial real estate		—		—		675		675		45,936		46,611		—
Residential mortgages		—		—		—		—		189,570		189,570		—
Consumer		—		—		—		—		36,609		36,609		—

Total	$	—	$	—	$	2,214	$	2,214	$	301,611	$	303,825	$	—

Total loans:
Commercial non-real estate	$	3,874	$	1,223	$	8,481	$	13,578	$	5,380,113	$	5,393,691	$	45
Construction and land development		282		748		7,325		8,355		1,032,301		1,040,656		685
Commercial real estate		5,379		6,903		16,319		28,601		3,027,662		3,056,263		1,054
Residential mortgages		1,118		4,813		8,103		14,034		1,757,237		1,771,271		92
Consumer		4,472		2,153		4,457		11,082		1,611,093		1,622,175		2,267

Total	$	15,125	$	15,840	$	44,685	$	75,650	$	12,808,406	$	12,884,056	$	4,143

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


													Recorded
					Greater than								investment
	30-59 days		60-89 days		90 days		Total				Total		> 90 days
December 31, 2013	past due		past due		past due		past due		Current		Loans		and accruing
	(In thousands)
Originated loans:
Commercial non-real estate	$	11,645	$	1,203	$	4,803	$	17,651	$	4,096,186	$	4,113,837	$	521
Construction and land development		5,877		1,264		5,970		13,111		739,270		752,381		—
Commercial real estate		8,178		5,744		14,620		28,542		1,993,986		2,022,528		420
Residential mortgages		12,410		3,870		3,540		19,820		1,176,436		1,196,256		—
Consumer		8,798		1,913		3,823		14,534		1,394,596		1,409,130		2,344

Total	$	46,908	$	13,994	$	32,756	$	93,658	$	9,400,474	$	9,494,132	$	3,285

Acquired loans:
Commercial non-real estate	$	1,982	$	2,332	$	1,467	$	5,781	$	921,216	$	926,997	$	541
Construction and land development		862		1,529		1,161		3,552		139,379		142,931		541
Commercial real estate		3,742		1,345		9,026		14,113		953,035		967,148		5,853
Residential mortgages		5,632		2,698		5,503		13,833		301,507		315,340		72
Consumer		1,029		120		1,013		2,162		117,441		119,603		82

Total	$	13,247	$	8,024	$	18,170	$	39,441	$	2,432,578	$	2,472,019	$	7,089

Covered loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	23,390	$	23,390	$	—
Construction and land development		—		—		1,539		1,539		18,690		20,229		—
Commercial real estate		—		—		675		675		52,490		53,165		—
Residential mortgages		—		—		3		3		209,015		209,018		—
Consumer		—		—		—		—		52,864		52,864		—

Total	$	—	$	—	$	2,217	$	2,217	$	356,449	$	358,666	$	—

Total loans:
Commercial non-real estate	$	13,627	$	3,535	$	6,270	$	23,432	$	5,040,792	$	5,064,224	$	1,062
Construction and land development		6,739		2,793		8,670		18,202		897,339		915,541		541
Commercial real estate		11,920		7,089		24,321		43,330		2,999,511		3,042,841		6,273
Residential mortgages		18,042		6,568		9,046		33,656		1,686,958		1,720,614		72
Consumer		9,827		2,033		4,836		16,696		1,564,901		1,581,597		2,426

Total	$	60,155	$	22,018	$	53,143	$	135,316	$	12,189,501	$	12,324,817	$	10,374

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The following tables present the credit quality indicators of the Company’s various classes of loans at June 30, 2014 and December 31, 2013.

Commercial Non-Real Estate Credit Exposure

Credit Risk Profile Based on Payment Activity


	June 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
	(In thousands)								(In thousands)
Grade:
Pass	$	4,481,163	$	701,528	$	2,922	$	5,185,613	$	3,990,320	$	846,134	$	10,477	$	4,846,931
Pass-Watch		61,443		35,433		2		96,878		46,734		44,105		9		90,848
Special Mention		19,747		15,787		338		35,872		41,812		19,915		2,897		64,624
Substandard		47,648		16,411		10,574		74,633		34,276		16,125		9,662		60,063
Doubtful		695		—		—		695		695		718		345		1,758
Loss		—		—		—		—		—		—		—		—

Total	$	4,610,696	$	769,159	$	13,836	$	5,393,691	$	4,113,837	$	926,997	$	23,390	$	5,064,224

Construction Credit Exposure

Credit Risk Profile Based on Payment Activity


	June 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
	(In thousands)								(In thousands)
Grade:
Pass	$	852,093	$	87,666	$	2,470	$	942,229	$	709,261	$	112,773	$	1	$	822,035
Pass-Watch		20,909		3,007		1,011		24,927		7,817		1,907		1,226		10,950
Special Mention		4,973		5,940		99		11,012		3,926		9,409		276		13,611
Substandard		25,635		23,224		13,397		62,256		31,377		18,842		11,498		61,717
Doubtful		—		10		222		232		—		—		7,228		7,228
Loss		—		—		—		—		—		—		—		—

Total	$	903,610	$	119,847	$	17,199	$	1,040,656	$	752,381	$	142,931	$	20,229	$	915,541

Commercial Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade


	June 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
	(In thousands)								(In thousands)
Grade:
Pass	$	2,009,323	$	775,400	$	5,630	$	2,790,353	$	1,864,115	$	896,578	$	1,678	$	2,762,371
Pass-Watch		61,884		13,629		6,641		82,154		49,578		9,530		10,266		69,374
Special Mention		19,411		8,740		1,303		29,454		15,785		19,798		1,999		37,582
Substandard		82,355		38,877		33,003		154,235		93,034		41,242		31,350		165,626
Doubtful		33		—		34		67		16		—		7,872		7,888
Loss		—		—		—		—		—		—		—		—

Total	$	2,173,006	$	836,646	$	46,611	$	3,056,263	$	2,022,528	$	967,148	$	53,165	$	3,042,841

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

Residential Mortgage Credit Exposure

Credit Risk Profile Based on Payment Activity


	June 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
			(In thousands)								(In thousands)
Performing	$	1,463,331	$	110,267	$	189,570	$	1,763,168	$	1,182,266	$	307,078	$	209,015	$	1,698,359
Nonperforming		6,646		1,457		—		8,103		13,990		8,262		3		22,255

Total	$	1,469,977	$	111,724	$	189,570	$	1,771,271	$	1,196,256	$	315,340	$	209,018	$	1,720,614

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity


	June 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
			(In thousands)								(In thousands)
Performing	$	1,497,480	$	83,629	$	36,609	$	1,617,718	$	1,404,032	$	117,789	$	52,864	$	1,574,685
Nonperforming		3,683		774		—		4,457		5,098		1,814		—		6,912

Total	$	1,501,163	$	84,403	$	36,609	$	1,622,175	$	1,409,130	$	119,603	$	52,864	$	1,581,597

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

Commercial:

•

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

•

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

•

Special Mention - These credits exhibit some signs of “Watch,” but to a greater magnitude. These credits constitute an undue and unwarranted credit risk, but not to a point of justifying a classification of “Substandard.” They have weaknesses that, if not checked or corrected, weaken the asset or inadequately protect the bank.

•

Substandard - These credits constitute an unacceptable risk to the bank. They have recognized credit weaknesses that jeopardize the repayment of the debt. Repayment sources are marginal or unclear.

•

Doubtful - A doubtful credit has all of the weaknesses inherent in one classified “Substandard” with the added characteristic that weaknesses make collection in full highly questionable or improbable.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

•

Loss - Credits classified as Loss are considered uncollectable and are charged off promptly once so classified.

Residential and Consumer:

•

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

•

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

Changes in the carrying amount of acquired-impaired loans and accretable yield are presented in the following table for the six months ended June 30, 2014 and the year ended December 31, 2013:


	June 30, 2014												December 31, 2013
	Covered						Noncovered						Covered						Noncovered
	Carrying						Carrying						Carrying						Carrying
	Amount			Accretable			Amount			Accretable			Amount			Accretable			Amount			Accretable
	of Loans			Yield			of Loans			Yield			of Loans			Yield			of Loans			Yield
(In thousands)
Balance at beginning of period	$	358,666		$	122,715		$	68,075		$	131,370		$	515,823		$	115,594		$	141,201		$	203,186
Additions		—			—			—			—			—			—			—			—
Payments received, net		(65,314	)		(936	)		(28,167	)		(15,493	)		(189,987	)		(1,298	)		(116,187	)		(47,330	)
Accretion		10,473			(10,473	)		26,353			(26,353	)		32,830			(32,830	)		43,061			(43,061	)
Increase (Decrease) in expected cash flows based on actual cash flows and changes in cash flow assumptions		—			3,691			—			(401	)		—			(17,433	)		—			3,894
Net transfers from nonaccretable difference to accretable yield		—			14,152			—			15,151			—			58,682			—			14,681

Balance at end of period	$	303,825		$	129,149		$	66,261		$	104,274		$	358,666		$	122,715		$	68,075		$	131,370

4. Fair Value

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

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)

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 (in thousands) on a recurring basis in the consolidated balance sheets.


	June 30, 2014
	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	282	$	—	$	282
Municipal obligations		—		20,837		20,837
Corporate debt securities		3,500		—		3,500
Mortgage-backed securities		—		1,208,125		1,208,125
Collateralized mortgage obligations		—		90,948		90,948
Equity securities		9,709		—		9,709

Total available for sale securities		13,491		1,319,910		1,333,401

Derivative assets (1)		—		17,700		17,700

Total recurring fair value measurements - assets	$	13,491	$	1,337,610	$	1,351,101

Liabilities
Derivative liabilities (1)	$	—	$	18,458	$	18,458

Total recurring fair value measurements - liabilities	$	—	$	18,458	$	18,458

(1)	For further disaggregation of derivative assets and liabilities, see Note 5 - Derivatives.


	December 31, 2013
	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	505	$	—	$	505
Municipal obligations		—		35,961		35,961
Corporate debt securities		3,500		—		3,500
Mortgage-backed securities		—		1,276,958		1,276,958
Collateralized mortgage obligations		—		94,125		94,125
Equity securities		10,723		—		10,723

Total available for sale securities		14,728		1,407,044		1,421,772

Derivative assets (1)		—		15,579		15,579

Total recurring fair value measurements - assets	$	14,728	$	1,422,623	$	1,437,351

Liabilities
Derivative liabilities (1)	$	—	$	15,006	$	15,006

Total recurring fair value measurements - liabilities	$	—	$	15,006	$	15,006

(1)	For further disaggregation of derivative assets and liabilities, see Note 5 - Derivatives.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)

Securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities, obligations of U.S. Government-sponsored agencies, and certain other debt and equity securities. Level 2 classified securities include residential mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds. The level 2 fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-standard pricing models. Substantially all of the model inputs are observable in the marketplace or can be supported by observable data. The Company invests only in high quality securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two to five years. Company policies limit investments to securities having a rating of not less than “Baa” or its equivalent by a nationally recognized statistical rating agency. There were no transfers between valuation hierarchy levels during the periods shown.

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

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

Fair Value of Assets Measured on a Nonrecurring Basis

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

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)

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

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


	June 30, 2014
	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	32,996	$	—	$	32,996
Other real estate owned		—		—		21,393		21,393

Total nonrecurring fair value measurements	$	—	$	32,996	$	21,393	$	54,389


	December 31, 2013
	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	24,392	$	—	$	24,392
Other real estate owned		—		—		25,525		25,525

Total nonrecurring fair value measurements	$	—	$	24,392	$	25,525	$	49,917

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 Available for Sale – 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 – Residential mortgage loans originated for sale are classified as loans held for sale and carried at the lower of cost or market. These loans are generally sold within 90 days. For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.

Accrued Interest Receivable and Accrued Interest Payable – For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)

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.

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

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

The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amount at June 30, 2014 and December 31, 2013 (in thousands):


			June 30, 2014
							Total		Carrying
	Level 1		Level 2		Level 3		Fair Value		Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	865,297	$	—	$	—	$	865,297	$	865,297
Available for sale securities		13,491		1,319,910		—		1,333,401		1,333,401
Held to maturity securities		—		2,355,413		—		2,355,413		2,343,828
Loans, net		—		32,996		12,635,212		12,668,208		12,755,384
Loans held for sale		—		22,017		—		22,017		22,017
Accrued interest receivable		44,259		—		—		44,259		44,259
Derivative financial instruments		—		17,700		—		17,700		17,700
Financial liabilities:
Deposits	$	—	$	—	$	14,938,111	$	14,938,111	$	15,245,227
Federal funds purchased		4,225		—		—		4,225		4,225
Securities sold under agreements to repurchase		644,439		—		—		644,439		644,439
FHLB borrowings		415,000		—		—		415,000		415,000
Long-term debt		—		372,037		—		372,037		374,991
Accrued interest payable		4,090		—		—		4,090		4,090
Derivative financial instruments		—		18,458		—		18,458		18,458

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)


	December 31, 2013
							Total		Carrying
	Level 1		Level 2		Level 3		Fair Value		Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	617,280	$	—	$	—	$	617,280	$	617,280
Available for sale securities		14,728		1,407,044		—		1,421,772		1,421,772
Held to maturity securities		100,316		2,476,268		—		2,576,584		2,611,352
Loans, net		—		24,392		12,023,330		12,047,722		12,191,191
Loans held for sale		—		24,515		—		24,515		24,515
Accrued interest receivable		42,977		—		—		42,977		42,977
Derivative financial instruments		—		15,579		—		15,579		15,579
Financial liabilities:
Deposits	$	—	$	—	$	15,352,024	$	15,352,024	$	15,360,516
Federal funds purchased		7,725		—		—		7,725		7,725
Securities sold under agreements to repurchase		650,235		—		—		650,235		650,235
Long-term debt		—		385,557		—		385,557		385,826
Accrued interest payable		4,353		—		—		4,353		4,353
Derivative financial instruments		—		15,006		—		15,006		15,006

5. Derivatives

Risk Management Objective of Using Derivatives

The Bank has entered into interest rate derivative agreements as a service to certain qualifying customers. The Bank manages a matched book with respect to these customer derivatives in order to minimize the net risk exposure resulting from such agreements. 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 our variable rate borrowing. The Bank also enters into risk participation agreements under which it may either sell or buy credit risk associated with a customer’s performance under certain interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts and fair values (in thousands) of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of June 30, 2014 and December 31, 2013.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Derivatives (continued)


							Fair Values (1)
			Notional Amounts				Assets				Liabilities
	Type of Hedge		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Derivatives not designated as hedging instruments:
Interest rate swaps (2)		N/A	$	756,356	$	650,667	$	16,895	$	14,147	$	17,361	$	13,777
Risk participation agreements		N/A		81,540		19,736		113		2		156		2
Forward commitments to sell residential mortgage loans		N/A		47,063		45,910		43		326		530		115
Interest rate-lock commitments on residential mortgage loans N/A				30,443		25,956		255		56		35		107
Foreign exchange forward contracts		N/A		21,964		21,299		394		1,048		376		1,005

			$	937,366	$	763,568	$	17,700	$	15,579	$	18,458	$	15,006

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

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

Derivatives Not Designated as Hedges

Customer interest rate derivatives

The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. The Bank simultaneously 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 as part of other income.

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 its normal credit review process.

Mortgage banking derivatives

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

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Derivatives (continued)

Customer foreign exchange forward contract derivatives

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

Effect of Derivative Instruments on the Income Statement

The effect of the Company’s derivative financial instruments on the income statement was immaterial for the three-month and six-month periods ended June 30, 2014 and 2013.

Credit-risk-related Contingent Features

Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as the downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. As of June 30, 2014, the aggregate fair value of derivative instruments with credit-risk-related contingent features that were in a net liability position was $8.8 million, for which the Bank had posted collateral of $19.3 million.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Derivatives (continued)

Offsetting Assets and Liabilities

Offsetting information in regards to derivative assets and liabilities subject to master netting agreements at June 30, 2014 and December 31, 2013 is presented in the following tables (in thousands):


	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
Description	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral		Net Amount
As of June 30, 2014
Derivative Assets	$	17,008	$	—	$	17,008	$	1,386	$	—	$	15,622

Total	$	17,008	$	—	$	17,008	$	1,386	$	—	$	15,622

Derivative Liabilities	$	17,517	$	—	$	17,517	$	1,386	$	17,895	$	(1,764	)

Total	$	17,517	$	—	$	17,517	$	1,386	$	17,895	$	(1,764	)

As of December 31, 2013
Derivative Assets	$	14,149	$	—	$	14,149	$	3,462	$	—	$	10,687

Total	$	14,149	$	—	$	14,149	$	3,462	$	—	$	10,687

Derivative Liabilities	$	13,779	$	—	$	13,779	$	3,462	$	7,406	$	2,911

Total	$	13,779	$	—	$	13,779	$	3,462	$	7,406	$	2,911

6. Stockholders’ Equity

Stock Repurchase Program

The Company’s board of directors approved a stock repurchase program on April 30, 2013 that authorized the repurchase of up to 5% of the Company’s outstanding common stock. On May 8, 2013 Hancock entered into an accelerated share repurchase (ASR) transaction with Morgan Stanley & Co. LLC (Morgan Stanley). In the ASR transaction, the Company paid $115 million to Morgan Stanley and received from them approximately 2.8 million shares of Hancock common stock, representing approximately 76% of the estimated total number of shares to be repurchased. On May 5, 2014, final settlement of the ASR agreement occurred at which time the Company received approximately 0.6 million shares from Morgan Stanley. The number of shares delivered to the Company in

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Stockholders’ Equity (continued)

this ASR transaction was based generally on the volume-weighted average price per share of the Hancock common stock during the term of the ASR agreement less a specified discount and on the amount paid at inception to Morgan Stanley, subject to certain adjustments in accordance with the terms of the ASR agreement. The ASR transaction was treated as two separate transactions: (i) the acquisition of treasury shares on the dates the shares were received; and (ii) a forward contract indexed to the Company’s common stock that was classified as equity. The 2013 program was superseded by the 2014 program. See Note 13 for further details.

Accumulated Other Comprehensive Income (Loss)

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

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


	Available			HTM Securities						Loss on
	for Sale			Transferred			Employee			Effective Cash
	Securities			from AFS			Benefit Plans			Flow Hedges			Total
Balance, January 1, 2013	$	38,854		$	19,090		$	(80,688	)	$	(181	)	$	(22,925	)

Other comprehensive income before income taxes:
Net change in unrealized gain (loss)		(86,385	)		—			—			(4	)		(86,389	)
Reclassification of net (gains) losses realized and included in earnings		—			—			3,981			301			4,282
Amortization of unrealized net gain on securities transferred to HTM		—			(5,643	)		—			—			(5,643	)
Income tax expense (benefit)		(31,544	)		(2,038	)		1,486			116			(31,980	)

Balance, June 30, 2013	$	(15,987	)	$	15,485		$	(78,193	)	$	—		$	(78,695	)

Balance, January 1, 2014	$	8,263		$	(21,189	)	$	(22,453	)	$	—		$	(35,379	)

Other comprehensive income before income taxes:
Net change in unrealized gain (loss)		15,412			—			—			—			15,412
Reclassification of net (gains) losses realized and included in earnings		—			—			2,201			—			2,201
Amortization of unrealized net gain on securities transferred to HTM		—			1,571			—			—			1,571
Income tax expense (benefit)		5,637			554			905			—			7,096

Balance, June 30, 2014	$	18,038		$	(20,172	)	$	(21,157	)	$	—		$	(23,291	)

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Stockholders’ Equity (continued)

The following table shows the line item affected by amounts reclassified from accumulated other comprehensive income:


Amount reclassified from AOCI	Six Months Ended June 30,					Increase (decrease) in affected line item
(in thousands)	2014		2013			on the income statement
Amortization/accretion of unrealized net gain/(loss) on securities transferred to HTM	$	1,571	$	(5,643	)	Interest income
Tax effect		554		(2,038	)	Income taxes

Net of tax		1,017		(3,605	)	Net income

Amortization of defined benefit pension and post-retirement items	$	195	$	3,981		(a) Employee benefits expense
Tax effect		68		1,486		Income taxes

Net of tax		127		2,495		Net income

Gains and losses on cash flow hedges	$	—	$	301		Interest expense
Tax effect		—		105		Income taxes

Net of tax		—		196		Net income

Total reclassifications, net of tax	$	1,144	$	(914	)	Net income

(a)	These accumulated other comprehensive income components are included in the computation of net periodic pension and post-retirement cost that is reported with employee benefits expense (see Note 9 for additional details).

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

7. Earnings Per Share

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

A summary of the information used in the computation of earnings per common share follows (in thousands, except per share amounts):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
*Numerator:*
Net income to common shareholders	$	39,962	$	46,862	$	89,077	$	95,438
Net income allocated to participating securities—basic and diluted		819		880		1,900		1,782

Net income allocated to common shareholders—basic and diluted	$	39,143	$	45,982	$	87,177	$	93,656

*Denominator:*
Weighted average common shares—basic		81,933		83,279		82,099		84,071
Dilutive potential common shares		241		78		249		82

Weighted average common shares—diluted		82,174		83,357		82,348		84,153

Earnings per common share:
Basic	$	0.48	$	0.55	$	1.06	$	1.11
Diluted	$	0.48	$	0.55	$	1.06	$	1.11

Potential common shares consist of employee and director stock options. These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-dilutive, i.e., increase earnings per share or reduce a loss per share. Weighted average anti-dilutive potential common shares totaled 660,778 and 675,108 respectively for the three and six months ended June 30, 2014 and 1,433,249 and 1,298,940 respectively for the three and six months ended June 30, 2013.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

8. Share-Based Payment Arrangements

Hancock maintains incentive compensation plans that provide for awards of share-based compensation to employees and directors. These plans have been approved by the Company’s shareholders. Detailed descriptions of these plans were included in Note 13 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

A summary of option activity for the six months ended June 30, 2014 is presented below:


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual		Aggregate
	Number of			Exercise		Term		Intrinsic
Options	Shares			Price		(Years)		Value ($000)
Outstanding at January 1, 2014		1,332,656		$	38.85
Exercised		(29,281	)		29.35
Cancelled/Forfeited		(13,680	)		38.27
Expired		(113,447	)		63.41

Outstanding at June 30, 2014		1,176,248		$	36.72		4.7	$	2,770

Exercisable at June 30, 2014		891,217		$	38.52		3.9	$	1,494

The total intrinsic value of options exercised during the six months ended June 30, 2014 and 2013 was $0.2 million and $0.1 million, respectively.

A summary of the status of the Company’s nonvested restricted and performance shares as of June 30, 2014 and changes during the six months ended June 30, 2014, is presented below. These restricted and performance shares are subject to service requirements.


				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Nonvested at January 1, 2014		1,981,820		$	31.75
Granted		113,101			36.40
Vested		(259,291	)		32.10
Forfeited		(73,202	)		31.77

Nonvested at June 30, 2014		1,762,428		$	31.99

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

8. Share-Based Payment Arrangements (continued)

As of June 30, 2014, there were $35.0 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 six months ended June 30, 2014 and 2013 was $8.9 million and $0.7 million, respectively.

During the six months ended June 30, 2014, the Company granted 69,857 performance shares with a grant date fair value of $38.14 per share to key members of executive and senior management. The number of 2014 performance shares that ultimately vest at the end of the three-year required service period, if any, will be based on the relative rank of Hancock’s three-year total shareholder return (TSR) among the TSRs of a peer group of fifty regional banks. The maximum number of performance shares that could vest is 200% of the target award. The fair value of the performance awards at the grant date was determined using a Monte Carlo simulation method. Compensation expense for these performance shares will be recognized on a straight-line basis over the service period.

9. Retirement Plans

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

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

The following table shows the components of net periodic benefits cost included in expense for the plans for the periods indicated (in thousands).


	Three Months Ended June 30,
	2014			2013			2014		2013
							Other Post-
	Pension benefits						retirement Benefits
Service cost	$	3,035		$	4,007		$	26	$	55
Interest cost		4,817			4,362			232		330
Expected return on plan assets		(8,050	)		(7,701	)		—		—
Amortization of prior service cost		—			—			—		—
Amortization of net loss		5			1,463			25		823

Net periodic benefit cost	$	(193	)	$	2,131		$	283	$	1,208

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

9. Retirement Plans (continued)


	Six Months Ended June 30,
	2014			2013			2014		2013
							Other Post-
	Pension benefits						retirement Benefits
Service cost	$	6,460		$	7,936		$	63	$	110
Interest cost		9,626			8,306			570		660
Expected return on plan assets		(16,111	)		(13,964	)		—		—
Amortization of prior service cost		—			—			—		—
Amortization of net loss		13			3,208			182		861

Net periodic benefit cost	$	(12	)	$	5,486		$	815	$	1,631

Based on currently available information, Hancock does not anticipate making a contribution to the pension plan during 2014.

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

10. Other Noninterest Income

Components of other noninterest income are as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014		2013
	(In thousands)
Income from bank owned life insurance	$	2,357		$	2,809	$	4,671	$	6,108
Credit related fees		2,834			1,533		5,566		2,974
Income from derivatives		481			1,408		1,240		2,039
Gain/(loss) on sale of assets		(217	)		162		1,465		476
Safety deposit box income		443			462		956		1,013
Other miscellaneous		2,714			2,281		5,141		4,513

Total other noninterest income	$	8,612		$	8,655	$	19,039	$	17,123

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

11. Other Noninterest Expense

Components of other noninterest expense are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
	(In thousands)
Advertising	$	2,179	$	2,181	$	3,938	$	4,358
Ad valorem and franchise taxes		2,638		2,182		5,299		4,384
Printing and supplies		949		1,511		2,278		2,820
Insurance expense		1,018		1,065		2,058		2,131
Travel expense		1,061		1,288		1,957		2,401
Entertainment and contributions		1,529		1,269		2,941		2,991
Tax credit investment amortization		2,198		1,247		4,370		2,673
Other miscellaneous		13,736		5,037		18,284		12,653

Total other noninterest expense	$	25,308	$	15,780	$	41,125	$	34,411

Other miscellaneous expense for 2014 as shown in the table above includes $7.3 million of nonoperating items related to the FDIC settlement, sale of certain insurance business lines, branch closures and other items as further discussed below:

FDIC Settlement

During the second quarter of 2014, the Company recorded a $10.3 million expense for the settlement of an assessment by the FDIC related to its targeted review of certain previously paid loss claim reimbursement amounts. The assessment demanded repayment of these amounts due to the FDIC’s disagreement with the manner in which certain assets were administered and losses were calculated.

Sale of Insurance Business

In April 2014, the Company sold its property and casualty and group benefits insurance intermediary business. The lines of business being divested represent approximately half of the Company’s 2013 insurance commissions and fees. A gain of $9.4 million was recorded on the sale based on a $15.5 million sales price less the related tangible and intangible assets.

Branch Closures

During the second quarter of 2014, the Company recorded $3.5 million in costs related to the July 2014 closure of 15 branch locations in Mississippi, Florida and Louisiana as part of its ongoing branch rationalization process. Of this total, $2.9 million is included in other miscellaneous expense.

Reverse Repurchase Obligations Early Termination Fee

During the second quarter of 2014, the Company recorded $3.5 million in fees related to the early termination of reverse repurchase obligations.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

12. New Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) that requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

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

In May 2014, the FASB issued an ASU regarding revenue from contracts with customers affecting any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will be effective for the Company for the periods beginning after December 15, 2016. The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

12. New Accounting Pronouncements (continued)

In April 2014, the FASB issued a new standard changing the threshold for reporting discontinued operations and adding new disclosures for disposals. The new guidance defines a discontinued operation as a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” New disclosure and presentation requirements apply to discontinued operations and to disposals of individually significant components that do not qualify as discontinued operations. The guidance applies prospectively to new disposals of components and new classifications as held for sale beginning in 2015 for most entities, with early adoption allowed. The Company early adopted this pronouncement in the second quarter of 2014. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

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

13. Subsequent Event

On July 16, 2014, the Company’s board of directors approved a stock repurchase plan that authorizes the repurchase up to 5%, or approximately 4 million shares, of its currently outstanding common stock. The approved plan allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company in one or more transactions, from time to time until December 31, 2015.

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

OVERVIEW

Recent Economic and Industry Developments

July reports from the Federal Reserve point to continued improvement of economic activity throughout most of Hancock’s market area. Activity among energy-related businesses operating mainly in Hancock’s south Louisiana and Houston, Texas market areas remained strong with expectations of continued improvement over the coming months. The travel and tourism industry, which is important within several of the Company’s market areas, saw an increase in activity with many local hotels and resorts reporting high occupancy levels. Companies reported several tourism-related capital projects in progress that are anticipated to encourage travel to the areas in which we operate. However, some hospitality experts have concerns that rising gas prices could have a negative impact on travel and tourism. Retailers are showing improved sales over prior-year levels, and the outlook for the remainder of the year is positive. Auto sales were especially strong, with one industry contact stating that sales were back to pre-recession levels. Reports on manufacturing activity were generally positive, with purchasing managers expecting higher production over the next three to six months.

The real estate markets for residential properties were slightly down to flat. Sales of existing homes were soft, mainly due to higher home prices and limited inventory. Although the outlook for home sales has weakened since the last quarter, most brokers remained positive and have indicated that they expect to see continued improvement over prior-year levels. New home sales and construction activity are ahead of prior-year levels and expected to steadily improve.

The commercial real estate market continues to improve, with growing demand for office and industrial space in certain market areas and continued high occupancy and rising rental rates for apartments throughout the region. Commercial construction activity has increased in these sectors. Continued improvement in the commercial real estate market is expected over the next several months.

The recovery of the overall U.S. economy continues. However, the rate of growth is not consistent across all regions, leading to slow and erratic overall improvement. National unemployment rates continue to decrease, but are still well above full employment levels and labor force participation rates remain near historic lows. Competition among financial services firms remains intense for high quality customers, continuing to exert downward pressure on loan pricing.

The Federal Reserve has responded to the slow and tenuous recovery from the deep recession by taking steps to hold interest rates at unprecedented low levels and has expressed its intent to maintain rates at these levels pending further improvement in the unemployment rate and low inflation rate. In addition, in July, the Federal Reserve began gradually curtailing the expansion of their portfolio of Treasuries and mortgage bonds. The bond-buying initiative is expected to conclude by the end of the year.

Highlights of Second Quarter 2014 Financial Results

Net income in the second quarter of 2014 was $40.0 million, or $0.48 per diluted common share, compared to $49.1 million, or $0.58, in the first quarter of 2014. Net income was $46.9 million, or $0.55 per diluted common share, in the second quarter of 2013. Net income for the second quarter of 2014 reflects the after-tax impact of certain nonoperating items totaling $12.1 million. There were no adjustments between operating income and net income for the first quarter of 2014, the second quarter of 2013, or the first six months of 2013. Net income for the six months ended June 30, 2014 was $89.1 million, or $1.06 per diluted common share, compared to $95.4 million, or $1.11 per diluted common share, for the six months ended June 30, 2013. The year-over-year decrease is due to the previously mentioned nonoperating expenses that occurred in the second quarter of 2014.

Operating income for the second quarter of 2014 was $49.6 million or $.59 per diluted common share, compared to $49.1 million, or $.58 in the first quarter of 2014. Operating income was $46.9 million, or $.55, in the second quarter of 2013. We define operating income as net income excluding tax-effected securities transactions gains or losses and nonoperating expense items. Management believes that operating income provides a useful measure of financial performance that helps investors compare the Company’s fundamental operations over time. A reconciliation of net income to operating income is included in the later section on “Selected Financial Data.”

Highlights of the Company’s second quarter of 2014 results:

•

Ongoing improvement in the overall quality of earnings (replacing declining purchase accounting income with core results); core net interest income (taxable equivalent or “te”) increased approximately $0.7 million linked-quarter; core net interest margin (NIM) narrowed 2 basis points (bps) (we define our core net interest income and core net interest margin results as reported results less the impact of net purchase accounting adjustments, see below for further discussion); noninterest income increased approximately $1.0 million after adjusting for the impact from the amortization of the FDIC loss share receivable and normalizing for the sale of selected insurance lines in early second quarter 2014

•

Operating expenses declined $2.3 million, or 1.5% linked-quarter, exceeding the Company’s expense management goals; however, management expects increases in operating expense in the near-term as investments are made in revenue-generating initiatives

•

Included in earnings was the after-tax impact of $12.1 million in nonoperating items related to the following:

•

a $10.3 million expense for the settlement of an assessment related to the FDIC’s targeted review of certain previously received reimbursements for claims under the loss share agreements

•

a $3.5 million expense for the early redemption of $115 million in fixed rate reverse repurchase obligations

•

$7.5 million in expense for various expense and efficiency initiatives and other items

•

a $9.4 million gain from the sale of the Company’s property and casualty and group benefits insurance intermediary business

•

Approximately $383 million, or 13% linked-quarter annualized net loan growth, and approximately $1.3 billion, or 12% year-over-year loan growth (each excluding the FDIC-covered portfolio)

•

Purchase accounting loan accretion declined $1.6 million linked-quarter; management expects sizeable quarterly declines in both the third and fourth quarters of 2014

•

Continued improvement in asset quality metrics

•

Solid capital levels with a tangible common equity (TCE) ratio of 9.29%

•

In July, Board of Directors authorized a 5% buyback of common stock issued and outstanding that is authorized through December 31, 2015

•

Return on average assets (ROA) from operating income of 1.04% compared to 1.05% in the first quarter of 2014 and 0.99% in the second quarter a year ago

RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the second quarter of 2014 was $167.3 million, down $0.9 million from the first quarter of 2014 primarily due to the $1.6 million decline in purchase accounting accretions. Excluding this impact, core net interest income increased $0.7 million due to the positive impact from an increase in earning assets, a better earning asset mix and one more day of interest accruals. These favorable items were partially offset by the continued decline in core loan yields. Average earning assets were $16.8 billion in the second quarter of 2014, up $51.3 million from the first quarter of 2014, as average loans were up $301.5 million, or 2%, while average investment securities and short-term investments decreased $219.1 million, or 6%, and $26.6 million, or 7%, respectively.

Net interest income (te) for the second quarter of 2014 was down $4.4 million, or 3%, compared to the second quarter of 2013, primarily due to a $6.0 million reduction in total purchase accounting accretion. A $291.5 million increase in average earning assets and a more favorable earning asset mix offset a 26 bps decrease in the core loan yield. For analytical purposes, management adjusts net interest income to a taxable equivalent basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

The net interest margin was 3.99% for the second quarter of 2014, down 7 bps from the first quarter of 2014, and down 18 bps from the second quarter of 2013. The current quarter’s core margin of 3.35% (reported net interest income (te) excluding purchase accounting accretion, annualized, as a percent of average earning assets) compressed 2 bps compared to the first quarter of 2014 and 3 bps compared to the second quarter of 2013. The continued decline in the core loan yield was partially offset by the favorable impact of net loan growth and reduced investment securities on the earning asset mix.

The overall reported yield on earning assets was 4.21% in the second quarter of 2014, a decrease of 8 bps from the first quarter of 2014 and 21 bps from the second quarter of 2013. The reported loan portfolio yield of 4.86% for the current quarter was down 14 bps from the first quarter of 2014 and 61 bps from the second quarter of 2013. Excluding purchase accounting loan accretion, the core loan yield of 3.97% in the current quarter was down 5 bps from the first quarter of 2014 and 26 bps from a year earlier.

The overall cost of funding earning assets was 0.22% in the second quarter of 2014, virtually unchanged from the first quarter of 2014 and down 3 bps from the second quarter of 2013. The mix of funding sources improved in the second quarter of 2014 compared to the second quarter of 2013. Interest-free sources, including noninterest-bearing demand deposits, funded 35.1% of earning assets in the current period, up from 33.0% a year ago. The overall rate paid on interest-bearing deposits was 0.22% in the current quarter, unchanged from the first quarter of 2014 and 4 bps below the second quarter of 2013. The decreases were primarily due to the impact of the sustained low rate environment on overall deposit rates including the re-pricing of time deposits.

Although only having a minor impact on the second quarter 2014 results, the Company redeemed a portion of its outstanding debt in June 2014 by unwinding $115 million in fixed rate reverse repurchase obligations with an average rate of 3.43%. The early redemption will save approximately $3.7 million in annualized interest expense.

Net interest income (te) for the first six months of 2014 totaled $335.5 million, a $13.1 million, or 4%, decrease from the first half of 2013. Excluding a $14.8 million decrease in purchase accounting accretion, net interest income was relatively flat for the first six months of 2014 as compared to the same period of 2013. A $257 million, or 2%, increase in average earning assets, a more favorable earning asset mix, a 31 basis point increase in investment yields and a 5 basis point decrease in the costs of funds offset a 33 basis point decrease in the core loan yield.

The reported net interest margin for the first six months of 2014 was 4.03% compared to 4.24% in 2013, while the core margin declined to 3.36% in 2014 compared to 3.40% in 2013. Changes in net interest income (te) and the net interest margin between the year-to-date periods reflected for the most part the same factors that affected the quarterly comparisons.

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


	Three Months Ended
	June 30, 2014							March 31, 2014							June 30, 2013
(dollars in millions)	Volume		Interest		Rate			Volume		Interest		Rate			Volume		Interest		Rate
Average earning assets
Commercial & real estate loans (te) (a) (b)	$	9,355.2	$	108.2		4.64	%	$	9,095.7	$	107.9		4.81	%	$	8,415.6	$	103.3		4.92	%
Mortgage loans		1,744.3		21.0		4.83			1,720.6		21.3		4.96			1,599.9		27.3		6.78
Consumer loans		1,581.4		23.6		5.99			1,563.1		23.1		6.00			1,579.4		26.5		6.74
Loan fees & late charges		—		0.8					—		0.8					—		1.2

Total loans (te)		12,680.9		153.6		4.86			12,379.4		153.1		5.00			11,594.9		158.3		5.47

Loans held for sale		14.7		0.1		4.14			19.2		0.2		4.06			28.3		0.3		3.53
US Treasury and agency securities		—		—		0.00			93.5		0.5		2.28			0.1		—		4.66
Mortgage-backed securities and CMOs		3,490.9		20.1		2.30			3,612.8		21.2		2.34			4,182.3		20.7		1.98
Municipals (te) (a)		205.8		2.4		4.63			217.0		2.5		4.56			233.0		2.6		4.51
Other securities		19.8		0.1		1.19			12.3		0.1		3.87			8.0		0.1		2.79

Total securities (te) (c)		3,716.5		22.6		2.43			3,935.6		24.3		2.47			4,423.4		23.4		2.11

Total short-term investments		379.6		0.2		0.22			406.2		0.2		0.23			453.6		0.3		0.25

Average earning assets (te)	$	16,791.7	$	176.5		4.21	%	$	16,740.4	$	177.8		4.29	%	$	16,500.2	$	182.3		4.42	%

Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	6,078.1	$	1.5		0.10	%	$	6,072.1	$	1.5		0.10	%	$	5,965.8	$	1.5		0.10	%
Time deposits		2,026.4		3.0		0.60			2,170.4		3.1		0.58			2,415.4		3.8		0.63
Public funds		1,450.3		0.7		0.21			1,526.6		0.8		0.20			1,483.3		0.9		0.23

Total interest-bearing deposits		9,554.8		5.2		0.22			9,769.1		5.4		0.22			9,864.5		6.2		0.25

Short-term borrowings		957.4		0.9		0.34			785.1		1.0		0.54			790.1		1.1		0.54
Long-term debt		380.2		3.1		3.32			386.0		3.2		3.34			393.6		3.2		3.28

Total borrowings		1,337.6		4.0		1.19			1,171.1		4.2		1.46			1,183.7		4.3		1.45

Total interest-bearing liabilities		10,892.4		9.2		0.34	%		10,940.2		9.6		0.36	%		11,048.2		10.5		0.38	%

Net interest-free funding sources		5,899.3							5,800.2							5,452.0

Total cost of funds	$	16,791.7	$	9.2		0.22	%	$	16,740.4	$	9.6		0.23	%	$	16,500.2	$	10.5		0.25	%

Net interest spread (te)			$	167.3		3.87	%			$	168.2		3.93	%			$	171.8		4.04	%
Net interest margin	$	16,791.7	$	167.3		3.99	%	$	16,740.4	$	168.2		4.06	%	$	16,500.2	$	171.8		4.17	%

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

(b)	Includes nonaccrual loans

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


	Six Months Ended
	June 30, 2014							June 30, 2013
(dollars in millions)	Volume		Interest		Rate			Volume		Interest		Rate
Average earning assets
Commercial & real estate loans (te) (a) (b)	$	9,226.1	$	216.1		4.72	%	$	8,348.8	$	216.7		5.23	%
Mortgage loans		1,732.5		42.4		4.89			1,596.3		52.6		6.60
Consumer loans		1,572.3		46.8		6.00			1,599.0		53.0		6.69
Loan fees & late charges		—		1.4					—		1.8

Total loans (te)		12,530.9		306.7		4.93			11,544.1		324.1		5.65

Loans held for sale		16.9		0.3		4.10			32.7		0.6		3.65
US Treasury and agency securities		46.5		0.5		2.26			2.8		—		1.29
Mortgage-backed securities and CMOs		3,551.5		41.3		2.32			3,941.7		39.4		2.00
Municipals (te) (a)		211.4		4.9		4.59			225.0		5.2		4.61
Other securities		16.1		0.2		2.22			8.2		0.1		2.37

Total securities (te) (c)		3,825.5		46.9		2.45			4,177.7		44.7		2.14

Total short-term investments		392.9		0.4		0.23			754.4		0.9		0.25

Average earning assets (te)	$	16,766.2	$	354.3		4.25	%	$	16,508.9	$	370.3		4.51	%

Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	6,075.1	$	3.0		0.10	%	$	5,974.0	$	3.2		0.11	%
Time deposits		2,098.0		6.1		0.59			2,411.1		7.9		0.66
Public funds		1,488.3		1.5		0.20			1,545.8		1.8		0.24

Total interest-bearing deposits		9,661.4		10.6		0.22			9,930.9		12.9		0.26

Short-term borrowings		871.7		1.9		0.43			777.0		2.4		0.62
Long-term debt		383.1		6.3		3.33			395.0		6.4		3.28

Total borrowings		1,254.8		8.2		1.32			1,172.0		8.8		1.51

Total interest-bearing liabilities		10,916.2		18.8		0.35	%		11,102.9		21.7		0.39	%

Net interest-free funding sources		5,850.0							5,406.0

Total cost of funds	$	16,766.2	$	18.8		0.22	%	$	16,508.9	$	21.7		0.27	%

Net interest spread (te)			$	335.5		3.90	%			$	348.6		4.12	%
Net interest margin	$	16,766.2	$	335.5		4.03	%	$	16,508.9	$	348.6		4.24	%

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

(b)	Includes nonaccrual loans

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

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

Reconciliation of Reported Net Interest Margin to Core Margin


	Three Months Ended									Six Months Ended June 30,
	June 30,			March 31,			June 30,			June 30,			June 30,
(dollars in millions)	2014			2014			2013			2014			2013
Net interest income (te) (a)	$	167.3		$	168.2		$	171.8		$	335.5		$	348.6
Purchase accounting accretion
Loan accretion		28.0			29.7			35.9			57.8			76.2
Whitney premium bond amortization		(1.4	)		(1.5	)		(3.4	)		(3.0	)		(6.9	)
Whitney and Peoples First CD accretion		0.1			0.1			0.2			0.1			0.5

Total net purchase accounting accretion		26.7			28.3			32.7			54.9			69.8

Net interest income (te) - core	$	140.6		$	139.9		$	139.1		$	280.6		$	278.8

Average earning assets	$	16,791.7		$	16,740.4		$	16,500.2		$	16,766.2		$	16,508.9
Net interest margin - reported		3.99	%		4.06	%		4.17	%		4.03	%		4.24	%
Net purchase accounting accretion (%)		0.64	%		0.69	%		0.79	%		0.67	%		0.85	%

Net interest margin - core		3.35	%		3.37	%		3.38	%		3.36	%		3.40	%

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

Provision for Loan Losses

During the second quarter of 2014, Hancock recorded a total provision for loan losses of $6.7 million, down from $8.0 million in the first quarter of 2014 and $8.3 million in the second quarter of 2013. The provision for noncovered loans was $6.8 million in the second quarter of 2014, compared to $8.3 million in the first quarter of 2014 and $7.9 million in the second quarter of 2013. The provision for the covered portfolio was a small net credit in each of the three-month periods. For the first six months of 2014, the total provision for loan losses was $14.7 million, down from $17.8 million for the same period in 2013. The decrease in the provision year-over-year was caused primarily by reductions in the expected losses within the covered portfolio.

The section below on “Allowance for Loan Losses and Asset Quality” provides additional information on changes in the allowance for loans losses and general credit quality. Certain differences in the determination of the allowance for loan losses for originated loans and for acquired-performing loans and acquired-impaired loans (which includes all covered loans) are described in Note 4 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Noninterest Income

Noninterest income totaled $56.4 million for the second quarter of 2014, relatively flat compared to the first quarter of 2014, but down $7.5 million from the second quarter of 2013. Excluding the impact of lost revenue from the sale of certain insurance business lines during the second quarter of 2014 and the impact from the amortization of the FDIC loss share receivable discussed further below, second quarter 2014 noninterest income increased approximately $1.0 million from first quarter 2014. Noninterest income totaled $113.1 million for the first six months of 2014, down $11.0 million, or 9%, from the first six months of 2013.

Service charges on deposits totaled $19.3 million for the second quarter of 2014, up $0.6 million, or 3%, from the first quarter of 2014, but down $0.6 million, or 3%, from the second quarter of 2013. The increase from the first quarter of 2014 to the second quarter of 2014 reflects the impact of two additional business days in the second quarter of 2014.

Bank card fees and ATM fees totaled $11.6 million in the second quarter of 2014, up $1.0 million, or 10%, from the first quarter of 2014 and relatively flat compared to the second quarter of 2013. The increase from the first quarter 2014 to the second quarter of 2014 was due to seasonally higher transaction volume.

Trust, investment and annuity fees and insurance fees totaled $18.5 million for the second quarter of 2014, down $0.5 million, or 2%, from the first quarter of 2014 and down $1.4 million, or 7%, from the second quarter of 2013. Trust fees were up $1.3 million from the first quarter due in part to seasonal revenue as well as growth in the value of assets managed. This increase was offset by a $1.8 million decrease in insurance fees as result of the Company selling its property and casualty and group benefits insurance intermediary business in April 2014.

Fees from the secondary mortgage operations in the second quarter of 2014 were down $0.2 million, or 11%, compared to the first quarter of 2014 and down $2.4 million, or 58%, compared to the second quarter of 2013. Through the first six months of 2014, fees from the secondary mortgage operations decreased $4.8 million compared to the first six months of 2013. The decline reflects reduced loan sales as a result of an overall slowing of mortgage refinancing activity as well as an increase of originated mortgages being held for investment.

The $1.9 million reduction in gains on the sale of assets compared to the prior quarter reflects the deposit premium received in the first quarter of 2014 related to the sale of the three branches.

Amortization of the FDIC loss share receivable totaled $3.3 million in the second quarter of 2014 compared to $3.9 million in the first quarter of 2014. For the first six months of 2014, amortization of the FDIC loss share receivable totaled $7.2 million. There was no amortization recorded in the first six months of 2013. The amortization reflects a reduction in the amount of expected reimbursements under the loss share agreements due to lower loss projections for the related covered loan pools. Elevated levels of amortization of the loss share receivable are anticipated throughout 2014 as projected losses from the covered portfolio have decreased.

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


	Three Months Ended								Six Months Ended
	June 30,			March 31,			June 30,		June, 30
	2014			2014			2013		2014			2013
(In thousands)
Service charges on deposit accounts	$	19,269		$	18,712		$	19,864	$	37,981		$	38,879
Trust fees		11,499			10,238			9,803		21,737			18,495
Bank card and ATM fees		11,596			10,569			11,399		22,165			22,457
Investment and annuity fees		5,097			4,952			5,192		10,049			9,769
Secondary mortgage market operations		1,758			1,965			4,139		3,723			8,522
Insurance commissions and fees		1,888			3,744			4,845		5,632			8,839
Amortization of FDIC loss share receivable		(3,321	)		(3,908	)		—		(7,229	)		—
Income from bank owned life insurance		2,357			2,314			2,809		4,671			6,108
Credit related fees		2,834			2,732			1,533		5,566			2,974
Income from derivatives		481			759			1,408		1,240			2,039
Gain on sale of assets		(217	)		1,682			162		1,465			476
Safety deposit box income		443			513			462		956			1,013
Other miscellaneous		2,714			2,427			2,281		5,141			4,513

Total noninterest income	$	56,398		$	56,699		$	63,897	$	113,097		$	124,084

Noninterest Expense

Noninterest expense increased $9.9 million for the second quarter of 2014 as compared to the first quarter, but was down $5.4 million from the second quarter of 2013. Included in second quarter 2014 noninterest expense were $12.1 million in nonoperating expense items discussed further below. Excluding these items, operating expense for the second quarter of 2014 totaled $144.7 million, which was down $2.3 million, or 2%, from the first quarter of 2014 and down $17.5 million, or 11%, from the same period in 2013. Operating expense for the first six months of 2014 totaled $291.7 million, down $30.1 million, or 9%, compared to the first six months of 2013. The decreases are primarily related to cost savings realized from the Company’s expense and efficiency initiatives and the divestiture of certain insurance business lines.

Total personnel expense (excluding $1.6 million in nonoperating expense) totaled $79.5 million for the second quarter of 2014, down $1.9 million, or 2%, compared to the first quarter of 2014 and down $8.1 million, or 9%, from the second quarter of 2013. Total personnel expense for the first six months of 2014 decreased $14.6 million, or 8%, compared to the first six months of 2013. Through a number of expense and efficiency initiatives, the Company has reduced its workforce during the past 18 months in excess of 350 FTEs, or 9%, resulting in an $8.6 million decrease in compensation expense and a $6.8 million decrease in benefit expense for the first six months of 2014 compared to the same period in 2013.

Occupancy and equipment expenses totaled $14.9 million for the second quarter of 2014, down $0.6 million, or 4%, from the first quarter of 2014 and down $2.4 million, or 14%, from the second quarter of 2013. Occupancy and equipment expenses totaled $30.4 million for the first six months of 2014, down $4.5 million, or 13%, from the first six months of 2013. The reductions in personnel, occupancy and equipment expenses reflect the effect of the closure or sales approximately 40 branches since June 30, 2013 and other expense and efficiency initiatives as management continually looks to rationalize the branch network.

All other expenses, excluding amortization of intangibles and $10.5 million in nonoperating expenses items, totaled $43.6 million for the second quarter of 2014, down $0.6 million, or 1%, from the first quarter of 2014 and down $6.3 million, or 13%, from second quarter of 2013. The effect of a decrease in ORE expense was partially offset by increases in other miscellaneous expenses. ORE expense in the second quarter included gains on the sale of some foreclosed properties and reductions in write-downs that reduced ORE expenses below the normal quarterly level of $0.5 to $1.0 million. For the first six months of 2014 compared to the first six months of 2013, all other expenses decreased $9.8 million, or 10%, primarily due to decreases in professional services, deposit insurance, telecommunications and postage and ORE expense.

Tax credit investment amortization reflects amortization of equity investments in entities that undertake projects that qualify under a variety of state or federal laws for tax credits against federal and state income taxes. The Company amortizes equity investments over the tax credit compliance period for those investments where return of the capital invested is not expected. The increase in year-over-year amortization expense reflects increases in the amount invested in projects throughout the period. The financial return from these investments is provided through tax credits earned and received, all of which are accounted for as a reduction of the provision for income taxes.

Nonoperating expense items totaled $12.1 million for the second quarter of 2014 and the first six months of 2014. Included in this total were expenses of $10.3 million for the settlement of an assessment by the FDIC related to a targeted review of certain previously paid claims under the loss sharing agreements, $7.5 million related to the Company’s expense and efficiency initiative including $3.5 million for the closure of certain branch locations as part of the ongoing branch rationalization process, and $3.5 million related to the early termination of reverse repurchase obligations. These expenses were partially offset by the $9.1 million gain from the divestiture of certain insurance business lines, net of costs related to discontinuing the operations.

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


				Three Months Ended				Six Months Ended
	June 30,			March 31,		June 30,		June 30,
(In thousands)	2014			2014		2013		2014			2013
Operating expense
Compensation expense	$	66,948		$	67,165	$	71,327	$	134,113		$	142,678
Employee benefits		12,558			14,267		16,268		26,825			32,844

Personnel expense		79,506			81,432		87,595		160,938			175,522

Net occupancy expense		10,840			11,266		12,404		22,106			24,730
Equipment expense		4,059			4,274		4,919		8,333			10,220
Data processing expense		12,828			12,419		12,781		25,247			24,315
Professional services expense		6,421			6,409		8,726		12,830			16,672
Amortization of intangibles		6,744			7,038		7,431		13,782			14,986
Telecommunications and postage		3,835			3,583		5,059		7,418			9,087
Deposit insurance and regulatory fees		2,743			2,967		4,200		5,710			7,846
Other real estate owned expense, net		84			1,777		3,355		1,861			4,063
Advertising		2,006			1,759		2,181		3,765			4,358
Ad valorem and franchise taxes		2,638			2,661		2,182		5,299			4,384
Printing and supplies		792			1,329		1,511		2,121			2,820
Insurance expense		1,018			1,040		1,065		2,058			2,131
Travel		1,059			896		1,288		1,955			2,401
Entertainment and contributions		1,529			1,412		1,269		2,941			2,991
Tax credit investment amortization		2,198			2,172		1,247		4,370			2,673
Other expense		6,427			4,548		5,037		10,975			12,653

Total operating expense	$	144,727		$	146,982	$	162,250	$	291,709		$	321,852

Nonoperating expense items
Impact of insurance business line divestiture	$	(9,101	)	$	—	$	—	$	(9,101	)	$	—
FDIC settlement		10,268			—		—		10,268			—
Expense and efficiency initiatives and other items		7,503			—		—		7,503			—
Early debt redemption		3,461			—		—		3,461			—

Total nonoperating expense items	$	12,131		$	—	$	—	$	12,131		$	—

Total noninterest expense	$	156,858		$	146,982	$	162,250	$	303,840		$	321,852

Income Taxes

The effective income tax rate for the second quarter of 2014 was approximately 31% compared to 27% in the first quarter of 2014 and 25% in the second quarter of 2013. The increase in the tax rate for the 2014 second quarter was due in part to the tax impact of the gain on the divestiture of selected insurance business lines. Management expects the effective tax rate for the remainder of 2014 to be approximately 27%. Hancock’s effective tax rates have varied from the 35% federal statutory rate primarily because of tax-exempt income and the use of tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the bank-owned life insurance program are the major components of tax-exempt income. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets the Company serves and are directed at tax credits issued under the Qualified Zone Academy Bonds (QZAB), Qualified School Construction Bonds (QSCB), Federal and State New Market Tax Credit (NMTC) and Low-Income Housing Tax Credit (LIHTC) programs. The investments generate tax credits which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. Table 5 reconciles reported income tax expense to that computed at the statutory federal tax rate for both the year-to-date and quarter-ended June 30, 2014 and 2013.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Taxes computed at statutory rate	$	20,170		$	21,899		$	43,730		$	44,657
Tax credits:
QZAB/QSCB		(769	)		(794	)		(1,538	)		(1,588	)
NMTC—Federal and State		(3,173	)		(2,152	)		(6,606	)		(4,304	)
LIHTC		(113	)		(231	)		(226	)		(462	)
Other tax credits		—			—			—			—

Total tax credits		(4,055	)		(3,177	)		(8,370	)		(6,354	)
State income taxes, net of federal income tax benefit		1,043			806			2,716			1,558
Tax-exempt interest		(1,530	)		(1,628	)		(3,114	)		(3,303	)
Bank owned life insurance		(825	)		(1,005	)		(1,635	)		(2,165	)
Goodwill—writeoff		1,112			—			1,112			—
Other, net		1,750			(1,188	)		1,427			(2,240	)

Income tax expense	$	17,665		$	15,707		$	35,866		$	32,153

The Company invests in Federal NMTC projects related to tax credit allocations that have been awarded to its wholly-owned Community Development Entity (CDE) as well as projects that utilize credits awarded to unrelated CDEs. From 2008 through 2013, the Company’s CDE was awarded three allocations totaling $148 million. These awards are expected to generate tax credits totaling $57.7 million over their seven-year compliance periods.

The Company intends to continue making investments in tax credit projects, though its ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits. Based only on tax credit investments that have been made, the Company expects to realize tax credits over the next three years totaling $12.9 million, $10.1 million and $9.0 million for 2015, 2016 and 2017, respectively.

Selected Financial Data

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


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2014		2014		2013		2014		2013
Common Share Data
Earnings per share:
Basic	$	0.48	$	0.58	$	0.55	$	1.06	$	1.11
Diluted	$	0.48	$	0.58	$	0.55	$	1.06	$	1.11
Operating earnings per share: (a)
Basic	$	0.59	$	0.58	$	0.55	$	1.18	$	1.11
Diluted	$	0.59	$	0.58	$	0.55	$	1.17	$	1.11
Cash dividends per share	$	0.24	$	0.24	$	0.24	$	0.48	$	0.48
Book value per share (period-end)	$	30.45	$	29.93	$	28.57	$	30.45	$	28.57
Tangible book value per share (period-end)	$	21.08	$	20.47	$	18.83	$	21.08	$	18.83
Weighted average number of shares (000s):
Basic		81,933		82,277		83,279		82,099		84,071
Diluted		82,174		82,534		83,357		82,348		84,153
Period-end number of shares (000s)		81,860		82,282		82,078		81,860		82,078
Market data:
High price	$	37.86	$	38.50	$	30.93	$	38.50	$	33.59
Low price	$	32.02	$	32.66	$	25.00	$	32.02	$	25.00
Period-end closing price	$	35.32	$	36.65	$	30.07	$	35.32	$	30.07
Trading volume (000s) (b)		27,432		31,328		38,599		58,760		68,068

(a)	Excludes nonoperating expense items and securities transactions.

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


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2014		2014		2013		2014		2013
(in thousands)
Income Statement:
Interest income	$	174,001	$	175,140	$	179,649	$	349,141	$	364,921
Interest income (te) (a)		176,555		177,776		182,292		354,331		370,290
Interest expense		9,223		9,578		10,470		18,801		21,727

Net interest income (te)		167,332		168,198		171,822		335,530		348,563
Provision for loan losses		6,691		7,963		8,257		14,654		17,835
Noninterest income excluding securities transactions		56,398		56,699		63,897		113,097		124,084
Securities transactions gains		—		—		—		—		—
Noninterest expense		156,858		146,982		162,250		303,840		321,852

Income before income taxes		57,627		67,316		62,569		124,943		127,591
Income tax expense		17,665		18,201		15,707		35,866		32,153

Net income	$	39,962	$	49,115	$	46,862	$	89,077	$	95,438

Total nonoperating expense items		12,131		—		—		12,131
Taxes on adjustments at marginal tax rate		2,518		—		—		2,518		—

Operating income (b)	$	49,575	$	49,115	$	46,862	$	98,690	$	95,438

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

(b)	Net income less nonoperating expense items and securities gains/losses. Management believes that this is a useful financial measure because it enables investors to assess ongoing operations.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2014			2014			2013			2014			2013
Performance Ratios
Return on average assets		0.84	%		1.05	%		0.99	%		0.94	%		1.01	%
Return on average assets (operating) (a)		1.04	%		1.05	%		0.99	%		1.04	%		1.01	%
Return on average common equity		6.51	%		8.18	%		7.82	%		7.33	%		7.93	%
Return on average common equity (operating) (a)		8.07	%		8.18	%		7.82	%		8.12	%		7.93	%
Tangible common equity ratio		9.29	%		9.24	%		8.52	%		9.29	%		8.52	%
Earning asset yield (te)		4.21	%		4.29	%		4.42	%		4.25	%		4.51	%
Total cost of funds		0.22	%		0.23	%		0.25	%		0.22	%		0.27	%
Net interest margin (te)		3.99	%		4.06	%		4.17	%		4.03	%		4.24	%
Efficiency ratio (b)		61.67	%		62.23	%		65.68	%		61.95	%		64.92	%
Allowance for loan losses to period-end loans		1.00	%		1.02	%		1.18	%		1.00	%		1.18	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due		126.26	%		112.64	%		91.43	%		126.26	%		91.43	%
Average loan/deposit ratio		84.20	%		81.20	%		76.41	%		82.63	%		75.86	%
Noninterest income excluding securities transactions to total revenue (te)		25.21	%		25.21	%		27.11	%		25.21	%		26.25	%

(a)	Excludes tax-effected securities transactions and nonoperating expense items. Management believes that this is a useful financial measure that helps investors compare the Company’s fundamental operations over time.

(b)	Efficiency ratio is defined as noninterest expense as a percent of total revenue (TE) before amortization of purchased intangibles, merger expenses and securities transactions.


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2014			2014			2013			2014			2013
Asset Quality Information
Nonaccrual loans (a)	$	89,901		$	101,400		$	132,716		$	89,901		$	132,716
Restructured loans—still accruing		7,868			8,459			11,541			7,868			11,541

Total nonperforming loans		97,769			109,859			144,257			97,769			144,257
Other real estate (ORE) and foreclosed assets		59,732			69,813			72,235			59,732			72,235

Total nonperforming assets	$	157,501		$	179,672		$	216,492		$	157,501		$	216,492

Nonperforming assets to loans, ORE and foreclosed assets		1.22	%		1.43	%		1.84	%		1.22	%		1.84	%
Accruing loans 90 days past due (a)	$	4,142		$	3,998		$	6,647		$	4,142		$	6,647
Accruing loans 90 days past due to loans		0.03	%		0.03	%		0.06	%		0.03	%		0.06	%
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets		1.25	%		1.46	%		1.90	%		1.25	%		1.90	%
Net charge-offs—noncovered	$	4,064		$	3,978		$	7,032		$	8,042		$	13,665
Net charge-offs—covered		1,181			2,510			2,026			3,691			5,248
Net charge-offs—noncovered to average loans		0.13	%		0.13	%		0.24	%		0.13	%		0.24	%
Allowance for loan losses	$	128,672		$	128,248		$	137,969		$	128,672		$	137,969
Allowance for loan losses to period-end loans		1.00	%		1.02	%		1.18	%		1.00	%		1.18	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due		126.26	%		112.64	%		91.43	%		126.26	%		91.43	%
Provision for loan losses	$	6,691		$	7,963		$	8,257		$	14,654		$	17,835

(a)	Nonaccrual loans and accruing loans past due 90 days or more do not include acquired-impaired loans with an accretable yield. Included in nonaccrual loans are $11.5 million, $16.1 million, and $22.2 million in restructured loans at 6/30/14, 3/31/14, and 6/30/13, respectively.


Supplemental Asset Quality Information	Originated		Acquired (a)			Covered (a) (b)			Total
	June 30, 2014
Nonaccrual loans	$	74,533	$	12,048		$	3,320		$	89,901
Restructured loans—still accruing		4,823		3,045			—			7,868

Total nonperforming loans		79,356		15,093			3,320			97,769
ORE and foreclosed assets (c)		40,158		—			19,574			59,732

Total nonperforming assets		119,514		15,093			22,894			157,501

Accruing loans 90 days past due		3,416		726			—			4,142
Allowance for loan losses		78,573		8,947			41,152			128,672


	March 31, 2014
Nonaccrual loans	$	79,400	$	18,626		$	3,374		$	101,400
Restructured loans—still accruing		4,538		3,921			—			8,459

Total nonperforming loans		83,938		22,547			3,374			109,859
ORE and foreclosed assets		45,386		—			24,427			69,813

Total nonperforming assets		129,324		22,547			27,801			179,672

Accruing loans 90 days past due		2,543		1,455			—			3,998
Allowance for loan losses		79,560		5,259			43,429			128,248


Loans Outstanding	Originated		Acquired (a)			Covered (a) (b)			Total
	June 30, 2014
Commercial non-real estate loans	$	4,610,696	$	769,159		$	13,836		$	5,393,691
Construction and land development loans		903,610		119,847			17,199			1,040,656
Commercial real estate loans		2,173,006		836,646			46,611			3,056,263
Residential mortgage loans		1,469,977		111,724			189,570			1,771,271
Consumer loans		1,501,163		84,403			36,609			1,622,175

Total loans		10,658,452		1,921,779			303,825			12,884,056

Change in loan balance from previous quarter		734,088		(350,657	)		(27,312	)		356,119


	March 31, 2014
Commercial non-real estate loans	$	4,353,549	$	830,211		$	14,269		$	5,198,029
Construction and land development loans		824,837		134,443			19,518			978,798
Commercial real estate loans		2,110,096		907,170			52,050			3,069,316
Residential mortgage loans		1,228,170		293,111			199,026			1,720,307
Consumer loans		1,407,712		107,501			46,274			1,561,487

Total loans		9,924,364		2,272,436			331,137			12,527,937

Change in loan balance from previous quarter		430,232		(199,583	)		(27,530	)		203,120

(a)	Acquired and covered loans are subject to purchase accounting guidance as described in note 4 to the condensed consolidated financial statements.

(b)	Acquired loans which are covered by loss sharing agreements with the FDIC providing considerable protection against credit risk.

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


	June 30,			March 31,			December 31,			September 30,			June 30,
	2014			2014			2013			2013			2013
Period-End Balance Sheet
Total loans, net of unearned income (a)	$	12,884,056		$	12,527,937		$	12,324,817		$	11,734,472		$	11,681,497
Loans held for sale		22,017			15,911			24,515			18,444			20,233
Securities		3,677,229			3,797,883			4,033,124			4,124,202			4,303,918
Short-term investments		440,688			280,373			268,839			462,313			442,917

Earning assets		17,023,990			16,622,104			16,651,295			16,339,431			16,448,565
Allowance for loan losses		(128,672	)		(128,248	)		(133,626	)		(138,223	)		(137,969	)
Goodwill		621,193			625,675			625,675			625,675			625,675
Other intangible assets, net		145,825			152,734			159,773			167,116			174,423
Other assets		1,687,095			1,731,905			1,706,134			1,807,847			1,823,607

Total assets	$	19,349,431		$	19,004,170		$	19,009,251		$	18,801,846		$	18,934,301

Noninterest-bearing deposits	$	5,723,663		$	5,613,872		$	5,530,253		$	5,479,696		$	5,340,177
Interest-bearing transaction and savings deposits		6,079,837			6,118,150			6,162,959			6,008,042			5,965,372
Interest-bearing public funds deposits		1,484,188			1,451,430			1,571,532			1,240,336			1,410,866
Time deposits		1,957,539			2,091,322			2,095,772			2,326,797			2,439,523

Total interest-bearing deposits		9,521,564			9,660,902			9,830,263			9,575,175			9,815,761

Total deposits		15,245,227			15,274,774			15,360,516			15,054,871			15,155,938
Short-term borrowings		1,063,664			712,634			657,960			782,779			828,107
Long-term debt		374,991			380,001			385,826			376,664			385,122
Other liabilities		172,967			174,227			179,880			231,090			219,794
Stockholders’ equity		2,492,582			2,462,534			2,425,069			2,356,442			2,345,340

Total liabilities & stockholders’ equity	$	19,349,431		$	19,004,170		$	19,009,251		$	18,801,846		$	18,934,301


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2014			2014			2013			2014			2013
Average Balance Sheet
Total loans, net of unearned income (a)	$	12,680,861		$	12,379,316		$	11,594,920		$	12,530,922		$	11,544,150
Loans held for sale		14,681			19,207			28,289			16,932			32,676
Securities (b)		3,716,563			3,935,616			4,423,441			3,825,484			4,177,713
Short-term investments		379,639			406,214			453,565			392,853			754,371

Earning assets		16,791,744			16,740,353			16,500,215			16,766,191			16,508,910
Allowance for loan losses		(126,887	)		(134,670	)		(137,815	)		(130,757	)		(137,465	)
Goodwill and other intangible assets		770,294			781,434			803,679			775,833			807,425
Other assets		1,604,113			1,667,990			1,856,753			1,635,875			1,908,513

Total assets	$	19,039,264		$	19,055,107		$	19,022,832		$	19,047,142		$	19,087,383

Noninterest-bearing deposits	$	5,505,734		$	5,499,993		$	5,346,916		$	5,502,879		$	5,330,871
Interest-bearing transaction and savings deposits		6,078,115			6,072,113			5,965,769			6,075,131			5,974,011
Interest-bearing public fund deposits		1,450,312			1,526,611			1,483,267			1,488,251			1,545,749
Time deposits		2,026,419			2,170,426			2,415,411			2,098,025			2,411,115

Total interest-bearing deposits		9,554,846			9,769,150			9,864,447			9,661,407			9,930,875

Total deposits		15,060,581			15,269,143			15,211,363			15,164,285			15,261,746
Short-term borrowings		957,386			785,063			790,103			871,701			776,973
Long-term debt		380,151			386,026			393,641			383,073			395,020
Other liabilities		177,761			178,895			222,656			178,325			227,224
Stockholders’ equity		2,463,385			2,435,980			2,405,069			2,449,758			2,426,420

Total liabilities & stockholders’ equity	$	19,039,264		$	19,055,107		$	19,022,832		$	19,047,142		$	19,087,383

(a)	Includes nonaccrual loans

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

LIQUIDITY

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

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, 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. As shown in the table below, our ratio of free securities to total securities was 20%, compared to 21% at March 31, 2014 and 22% at December 31, 2013. Free securities represent securities that are not pledged for any purpose, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window.

Liquidity Metrics


	June 30,			March 31,			December 31,			September 30,			June 30,
	2014			2014			2013			2013			2013
Free securities / total securities		20.00	%		21.00	%		22.00	%		37.00	%		35.00	%
Noncore deposits / total deposits		8.34	%		8.67	%		8.33	%		9.75	%		10.07	%
Wholesale funds / core deposits		10.29	%		7.83	%		7.41	%		8.56	%		8.91	%

The liability portion of the balance sheet provides liquidity mainly through various customers’ interest-bearing and noninterest-bearing deposit and sweep accounts. Core deposits consist of total deposits less certificates of deposits (CDs) of $100,000 or more, brokered CDs, and balances in sweep time deposit products used by commercial customers. The ratio of noncore deposits to total deposits was 8.34% at June 30, 2014, down 33 bps from March 31, 2014 and virtually unchanged from December 31, 2013. There were no brokered CDs outstanding as of June 30, 2014 compared to $98 million at March 31, 2014 and $60.2 million at December 31, 2013. The effect of the decrease in brokered CDs in the current quarter compared to the prior quarter and year-end 2013 was partially offset by an increase in public fund CDs.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings are additional sources of liquidity to meet short-term funding requirements. Wholesale funds, which are comprised of short-term borrowings and long-term debt, were 10.29% of core deposits at June 30, 2014, up from 7.83% at March 31, 2014 and 7.41% at December 31, 2013. Besides funding from customer sources, our short-term borrowing capacity includes an approved line of credit with the Federal Home Loan Bank of $2.7 billion and borrowing capacity at the Federal Reserve’s discount window in excess of $1.8 billion at June 30, 2014. At June 30, 2014, the Company had borrowings from the FHLB totaling $415 million which were primarily used to fund loan growth. There were no borrowings from the FHLB at the end of any prior periods. No amounts had been borrowed at the Federal Reserve’s discount window in any period. See the discussion of “Deposits” for more information.

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 six months ended June 30, 2014 and 2013.

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

CAPITAL RESOURCES

Stockholders’ equity totaled $2.5 billion at June 30, 2014, up $68 million from December 31, 2013. The tangible common equity ratio increased to 9.29% at June 30, 2014 from 9.00% at December 31, 2013.

The Board of Directors authorized a new common stock buyback program in July for up to 5%, or approximately 4 million shares, of the Company’s common stock issued and outstanding. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. The buyback authorization will expire December 31, 2015.

The primary quantitative measures that regulators use to gauge capital adequacy are the ratios of total and Tier 1 regulatory capital to risk-weighted assets (risk-based capital ratios) and the ratio of Tier 1 capital to average total assets (leverage ratio). Both the Company and its bank subsidiary are currently required to maintain minimum risk-based capital ratios of 8.0% total regulatory capital and 4.0% Tier 1 capital.

On July 2, 2013 the Federal Reserve Board finalized its rule implementing the Basel III regulatory capital framework and related Dodd-Frank Act changes. The interim final rule strengthens the definition of regulatory capital, increases risk-based capital requirements, and makes selected changes to the calculation of risk-weighted assets. The rule sets the Basel III minimum regulatory capital requirements for all organizations. It includes a new common equity Tier 1 ratio of 4.5% of risk-weighted assets, raises the minimum Tier 1 capital ratio from 4.0% to 6.0% of risk-weighted assets and sets a new conservation buffer of 2.5% of risk-weighted assets. The final rule is effective for the Company on January 1, 2015; however, the rule allows for transition periods for certain changes, including the conservation buffer. Based on estimated capital ratios using Basel III definitions, the Company and the Bank currently exceed all capital requirements of the new rule, including the fully phased-in conservation buffer.

At June 30, 2014, the regulatory capital ratios of the Company and the Bank were well in excess of current regulatory minimum requirements, as indicated in the table below. The Company and the Bank have been categorized as “well capitalized” in the most recent notices received from our regulators. As of June 30, 2014, regulatory capital for the Company and the Bank increased compared to both March 31, 2014 and December 31, 2013 as the Company’s net income exceeded dividends. Leverage ratios increased due to the increase in Tier 1 capital. Risk-based ratios were down compared to the prior two quarter-ends due to the growth in loans (primarily at 100% risk-weight) funded by liquidity from payoffs and maturities of securities (0%-20% risk weight).


	June 30,			March 31,			December 31,
	2014			2014			2013
Regulatory ratios:
Total capital (to risk weighted assets)
Hancock Holding Company		12.96	%		13.20	%		13.11	%
Whitney Bank		12.72	%		13.02	%		12.98	%
Tier 1 capital (to risk weighted assets)
Hancock Holding Company		11.83	%		11.90	%		11.76	%
Whitney Bank		11.58	%		11.72	%		11.64	%
Tier 1 leverage capital
Hancock Holding Company		9.61	%		9.43	%		9.34	%
Whitney Bank		9.44	%		9.32	%		9.29	%

(1)

Tier 1 capital generally includes common equity, retained earnings, non-controlling interest in equity of consolidated subsidiaries and a limited amount of qualifying perpetual preferred stock, reduced by goodwill and other disallowed intangibles and disallowed deferred tax assets and certain other assets. Total capital consists of Tier 1 capital plus perpetual preferred stock not qualifying as Tier 1 capital, mandatory convertible securities, certain types of subordinated debt and a limited amount of allowances for credit losses.

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

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

BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $3.7 billion at June 30, 2014, down $356 million from December 2013 and $121 million from March 31, 2014. During the second quarter of 2014, funds from repayments and maturities in the securities portfolio were used primarily to support loan growth. At June 30, 2014 securities available for sale totaled $1.3 billion and securities held to maturity totaled $2.4 billion.

The securities portfolio consists mainly of residential mortgage-backed securities and collateralized mortgage obligations issued or guaranteed by U.S. government agencies. The portfolio is designed to enhance liquidity while providing an acceptable rate of return. The Company invests only in high quality securities of investment grade quality with a targeted duration for the overall portfolio of between two and five. At June 30, 2014, the average maturity of the portfolio was 4.73 years with an effective duration of 4.12 and a weighted-average yield of 2.40%. The effective duration increases, under management scenarios, to 4.54 with a 100 basis point increase in the yield curve and to 4.67 with a 200 basis point increase. At year-end 2013, the average maturity of the portfolio was 3.97 years with an effective duration of 3.93 and a weighted-average yield of 2.28%.

Loans

Total loans at June 30, 2014 were $12.9 billion, up $356 million, or 3%, compared to March 31, 2014 and up $559 million, or 5%, from December 31, 2013. Excluding the FDIC-covered portfolio, total loans increased $383 million, or 3% from March 31, 2014 and $614 million from year-end 2013. The noncovered loan portfolio was up $1.3 billion, or 12% from June 30, 2013.

See Note 3 to the consolidated financial statements for the composition of originated, acquired and covered loans at June 30, 2014 and December 31, 2013. Originated loans include all loans not included in the acquired and covered loan portfolios described as follows. Acquired loans are those purchased in the Whitney acquisition on June 4, 2011 and that continue to be subject to purchase accounting considerations. Acquired loans include those that were performing satisfactorily at the acquisition date (acquired-performing) and loans acquired with evidence

of credit deterioration (acquired-impaired). Covered loans are those purchased in the December 2009 acquisition of Peoples First, which are covered by loss share agreements between the FDIC and the Company that afford significant loss protection. Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date without carryover of any allowance for loan losses. Certain differences in the accounting for originated loans and for acquired-performing and acquired-impaired loans (which include all covered loans) are described in Note 3 to the consolidated financial statements.

The largest component of linked-quarter net loan growth (excluding the FDIC-covered portfolio) was in the commercial and industrial portfolio, with additional growth and change in mix from the construction, residential mortgage and consumer portfolios. The majority of the growth during the second quarter came from the Houston and south Louisiana markets.

The Company’s commercial customer base is diversified over a range of industries, including oil and gas (O&G), 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. Loans outstanding to O&G industry customers totaled approximately $1.6 billion at June 30, 2014, up approximately $75 million from March 31, 2014. The majority of the O&G portfolio is with customers providing transportation and other services and products to support exploration and production activities. The Bank lends mainly to middle-market and smaller commercial entities, although it participates in larger shared-credit loan facilities with familiar businesses operating in the Company’s market areas. Shared credits funded at June 30, 2014 totaled approximately $1.6 billion, up approximately $125 million from the last quarter and $200 million from December 31, 2013. Approximately $976 million of shared national credits were with O&G customers at June 30, 2014, up $83 million from March 31, 2014, and up $163 million from year-end.

Construction and land development loans (C&D) loans and commercial real estate (CRE) loans in the originated and acquired portfolios increased a net $487 million over the first six months of 2014. CRE loans include loans on both income-producing properties as well as properties used by borrowers in commercial operations.

Residential mortgages in the originated and acquired portfolios were up a net $60 million during the second quarter and $70 million over the first six months of 2014. Consumer loans decreased by a net $57 million over this period.

Total covered loans at June 30, 2014 were down $27 million from March 31, 2014 and $55 million from December 31, 2013, reflecting normal repayments, charge-offs and foreclosures. The covered portfolio will continue to decline over the terms of the loss share agreements.

Allowance for Loan Losses and Asset Quality

The Company’s total allowance for loan losses was $128.7 million at June 30, 2014, compared to $128.2 million at March 31, 2014. The ratio of the allowance to period-end loans was 1.00% at June 30, 2014, down slightly from 1.02% at March 31, 2014. The allowance maintained on the originated portion of the loan portfolio totaled $78.6 million, or 0.74%, of related loans, at June 30, 2014, as compared to $79.6 million, or 0.80%, at March 31, 2014.

During the second quarter of 2014, Hancock recorded a total provision for loan losses of $6.7 million, down from $8.0 million in the first quarter of 2014. The total provision for loan losses for the first six months of 2014 was $14.7 million, compared to $17.8 million for the same period in 2013. The decrease year-over-year was caused by reductions in expected losses on covered loans.

Net charge-offs from the noncovered loan portfolio were $4.1 million, or 0.13% of average total loans on an annualized basis in the second quarter of 2014, both measures relatively flat compared to the first quarter of 2014.

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


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,
	2014			2014			2013			2014			2013
Allowance for loan losses at beginning of period	$	128,248		$	133,626		$	137,777		$	133,626		$	136,171

Loans charged-off:
Noncovered loans:
Commercial non real estate		1,272			2,386			121			3,658			4,200
Commercial and land development		950			91			5,348			1,041			6,365
Commercial real estate		650			723			750			1,373			2,871
Residential mortgages		856			241			856			1,097			902
Consumer		3,581			4,041			4,376			7,622			8,350

Total noncovered charge-offs		7,309			7,482			11,451			14,791			22,688

Covered loans:
Commercial non real estate		24			46			681			70			681
Commercial and land development		166			458			283			624			2,321
Commercial real estate		905			3,117			689			4,022			2,121
Residential mortgages		422			308			463			730			516
Consumer		1,049			81			483			1,130			1,091

Total covered charge-offs		2,566			4,010			2,599			6,576			6,730

Total charge-offs		9,875			11,492			14,050			21,367			29,418

Recoveries of loans previously charged-off:
Noncovered loans:
Commercial non real estate		585			826			1,358			1,411			2,338
Commercial and land development		413			651			372			1,064			1,037
Commercial real estate		726			331			729			1,057			1,512
Residential mortgages		269			94			526			363			895
Consumer		1,252			1,602			1,434			2,854			3,241

Total noncovered recoveries		3,245			3,504			4,419			6,749			9,023

Covered loans:
Commercial non real estate		6			445			90			451			90
Commercial and land development		39			857			142			896			484
Commercial real estate		1,235			136			322			1,371			878
Residential mortgages		13			6			2			19			2
Consumer		92			56			17			148			28

Total covered recoveries		1,385			1,500			573			2,885			1,482

Total recoveries		4,630			5,004			4,992			9,634			10,505

Net charge-offs—noncovered		4,064			3,978			7,032			8,042			13,665
Net charge-offs—covered		1,181			2,510			2,026			3,691			5,248

Total net charge-offs		5,245			6,488			9,058			11,733			18,913

Provision for loan losses before FDIC benefit—covered loans		(1,095	)		(7,155	)		1,355			(8,250	)		9,839
Benefit attributable to FDIC loss share agreement		1,022			6,853			(993	)		7,875			(2,876	)
Provision for loan losses noncovered loans		6,764			8,265			7,895			15,029			10,872

Provision for loan losses, net		6,691			7,963			8,257			14,654			17,835
(Decrease) Increase in FDIC loss share receivable		(1,022	)		(6,853	)		993			(7,875	)		2,876

Allowance for loan losses at end of period	$	128,672		$	128,248		$	137,969		$	128,672		$	137,969

Ratios:
Gross charge-offs—noncovered to average loans		0.23	%		0.24	%		0.40	%		0.24	%		0.40	%
Recoveries—noncovered to average loans		0.10	%		0.11	%		0.15	%		0.11	%		0.16	%
Net charge-offs—noncovered to average loans		0.13	%		0.13	%		0.24	%		0.13	%		0.24	%
Allowance for loan losses to period-end loans		1.00	%		1.02	%		1.18	%		1.00	%		1.18	%

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


	June 30,			December 31,
	2014			2013
	(In thousands)
Loans accounted for on a nonaccrual basis:
Commercial non-real estate loans	$	11,766		$	8,705
Commercial non-real estate loans—restructured		3,368			4,654

Total commercial non-real estate loans		15,134			13,359

Construction and land development loans		7,350			8,770
Construction and land development loans—restructured		3,701			7,930

Total construction and land development loans		11,051			16,700

Commercial real estate loans		30,652			37,369
Commercial real estate loans—restructured		3,943			3,091

Total commercial real estate loans		34,595			40,460

Residential mortgage loans		21,996			22,255
Residential mortgage loans—restructured		504			—

Total residential mortgage loans		22,500			22,255

Consumer loans		6,621			6,912

Total nonaccrual loans		89,901			99,686

Restructured loans still accruing:
Commercial non-real estate loans		2,285			2,323
Construction and land development loans		3,236			3,298
Commercial real estate loans		2,347			3,144
Residential mortgage loans		—			507
Consumer loans		—			—

Total restructured loans		7,868			9,272

ORE and foreclosed assets		59,732			76,979

Total nonperforming assets*	$	157,501		$	185,937

Loans 90 days past due still accruing	$	4,143		$	10,387

Ratios:
Nonperforming assets to loans plus
ORE and foreclosed assets		1.22	%		1.50	%
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due		126.26	%		111.97	%
Loans 90 days past due still accruing to loans		0.03	%		0.08	%

*	Includes total nonaccrual loans, total restructured loans—still accruing and ORE and foreclosed assets.

Nonperforming assets (NPAs) totaled $157.5 million at June 30, 2014, down $22.2 million from March 31, 2014 and $28.4 million from December 31, 2013. Nonperforming assets as a percent of total loans, ORE, and other foreclosed assets was 1.22% at June 30, 2014, compared to 1.43% at March 31, 2014 and 1.50% at December 31, 2013.

Short-Term Investments

Short-term liquidity investments, including interest-bearing bank deposits and Federal funds sold, increased $160 million from March 31, 2014 and $172 million from December 31, 2013, to a total of $441 million at June 30, 2014. Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors. Average short-term investments for the second quarter of 2014 were down $27 million, or 7%, compared to the first quarter of 2014, and $4 million, or 1%, compared to the fourth quarter of 2013.

Deposits

Total deposits were $15.2 billion at June 30, 2014, down less than 1% from March 31, 2014 and December 31, 2013. Average deposits for the second quarter of 2014 were down 1% from the first quarter of 2014.

Noninterest-bearing demand deposits (DDAs) increased by $110 million, or 2%, during the second quarter to $5.7 billion at June 30, 2014, and were up $194 million, or 4%, from December 31, 2013. DDAs at the end of the second quarter of 2014 were up $400 million, or 8%, from a year earlier. Noninterest-bearing demand deposits comprised 38% of total period-end deposits at June 30, 2014 compared to 37% at March 31, 2014, 36% at year-end 2013 and 35% at June 30, 2013.

Interest-bearing public fund deposits totaled $1.5 billion at June 30, 2014, up $33 million, or 2%, from March 31, 2014 but down $87 million, or 6%, from December 31, 2013. Public funds typically carry higher balances at year-end with subsequent reductions throughout the first six months of the year.

Time deposits totaled $2 billion at June 30, 2014, down $134 million, or 6%, from March 30, 2013 and down $138 million, or 7%, from December 31, 2013. Balance in sweep deposit products increased $43 million, or 12%, from December 31, 2013 primarily during the first quarter of 2014. CDs were down $137 million, or 9%, from March 31, 2014 and down $165 million, or 11%, from December 31, 2013 as low yields available to customers on maturing CDs continue to drive reductions in CD balances.

Short-Term Borrowings

At June 30, 2013, short-term borrowings totaled $1.1 billion, up $406 million, or 62%, from December 31, 2013. The Company borrowed $415 million on the $2.7 billion line of credit with the Federal Home Loan Bank of Dallas (“FHLB”) to fund loan growth, and to replace the $115 million in fixed rate reverse repurchase obligations that were “unwound” during June. Securities sold under agreements to repurchase are the main source of short-term borrowings. These 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, the amounts available over time can be volatile.

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.

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

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

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

The following table shows the commitments to extend credit and letters of credit at June 30, 2014 according to expiration date.


			Expiration Date
			Less than		1-3		3-5		More than
	Total		1 year		years		years		5 years
	(In thousands)
Commitments to extend credit	$	5,246,722	$	2,488,580	$	1,053,994	$	1,151,584	$	552,564
Letters of credit		450,670		300,868		86,973		59,436		3,393

Total	$	5,697,392	$	2,789,448	$	1,140,967	$	1,211,020	$	555,957

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Income Taxes

The Company invests in projects that yield tax credits issued under the QZAB, QSCB, NMTC, and LIHTC programs. Returns on these investments are generated through the receipt of federal and state tax credits. The tax credits are recorded as a reduction to the income tax provision in the year that they are earned. Tax credits from QZAB and QSCB bonds are generally earned over the life of the bonds in lieu of interest income. Credits on Federal NMTC investments are earned over the seven-year compliance period beginning with the year of investment. Credits on State NMTC investments are generally earned over a three- to five- year period depending upon the specific state program. Tax Credits for Low-Income Housing investments are earned over a ten-year period beginning with the year in which rental activity begins. These tax credits, if not used in the tax return for the year when the credits are first available for use, can be carried forward for 20 years. For those investments where the return of the principal is not expected, the equity investment is amortized over the life of the tax compliance period as a component of noninterest expense.

Reportable Segment Disclosures

Accounting standards require that information be reported about a company’s operating segments using a “management approach.” Reportable segments are identified in these standards as those revenue-producing components for which separate financial information is produced internally and which are subject to evaluation by the chief operating decision maker in deciding how to allocate resources to segments. On March 31, 2014, the Company combined its two state bank charters into one charter. Due to the charter change and consistent with its stated strategy that is focused on providing a consistent package of community banking products and services throughout a coherent market area, the Company has identified its overall banking operations as its only reportable segment. Because the overall banking operations comprise substantially all of the consolidated operations, no separate segment disclosures are presented.

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

NEW ACCOUNTING PRONOUNCEMENTS

See Note 12 to our Consolidated Financial Statements included elsewhere in this report.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and we intend such forward-looking statements to be covered by the safe harbor provisions therein and are including this statement for purposes of invoking these safe-harbor provisions. Forward-looking statements provide projections of results of operations or of financial condition or state other forward-looking information, such as expectations about future conditions and descriptions of plans and strategies for the future. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “estimate,” “forecast,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “can,” or similar verbs.

Forward-looking statements that we may make include, but may not be limited to, comments with respect to future levels of economic activity in our markets, loan growth, deposit trends, credit quality trends, future sales of nonperforming assets, net interest margin trends, future expense levels and the ability to achieve reductions in non-interest expense or other cost savings, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as accretion levels, the impact of the branch rationalization process, details of the common stock buyback, possible repurchases of shares under stock buyback

programs, and the financial impact of regulatory requirements. Hancock’s ability to accurately project results or predict the effects of future plans or strategies is inherently limited. Although Hancock believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ from those expressed in Hancock’s forward-looking statements include, but are not limited to, those risk factors outlined in Hancock’s most recent Annual Report on Form 10-K and other public filings with the Securities and Exchange Commission, which are available at the SEC’s internet site (http://www.sec.gov).

You are cautioned not to place undue reliance on these forward-looking statements as they are subject to risks and uncertainties. Hancock does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Hancock measures its interest rate sensitivity primarily by running net interest income simulations. The model measures annual net interest income sensitivity relative to a base case scenario and incorporates assumptions regarding balance sheet growth and the mix of earning assets and funding sources as well as pricing, re-pricing and maturity characteristics of the existing and projected balance sheet. The table below presents the results of simulations run as of June 30, 2014, assuming the indicated instantaneous and sustained parallel shift in the yield curve at the measurement date. These results indicate that we are slightly asset sensitive as compared to the stable rate environment assumed for the base case.


Net Interest Income (te) at Risk
Change in interest rate (basis points)	Estimated increase (decrease) in net interest income
+100		1.46	%
+200		3.43	%
+300		5.25	%

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

The foregoing disclosures related to our market risk should be read in conjunction with our audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2013 included in our 2013 Annual Report on Form 10-K.

Item 4. Controls and Procedures

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

Our management, including the Chief Executive Officers and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the three month period ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2013. 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.

The following table provides information with respect to purchases made by the issuer or any affiliated purchaser of the issuer’s equity securities for the three months ended June 30, 2014.


	Total number of shares or units purchased		Average price paid per share		Total number of shares purchased as a part of publicly announced plans or programs (1)		Maximum number of shares that may yet be purchased under plans or programs
April 1, 2014 - April 30, 2014		—	$	—		—		1,426,458
May 1, 2014 - May 31, 2014		590,222		33.75		590,222		836,236
June 1, 2014 - June 30, 2014		—		—		—		836,236

Total		590,222	$	33.75		590,222

(1)	The Company publicly announced its 2014 stock buyback program on July 24, 2014.

Item 6. Exhibits .

(a) Exhibits:


Exhibit Number		Description

*10.1		Hancock Holding Company 2014 Long Term Incentive Plan (filed as Exhibit 10.1 to Hancock’s Form 8-K filed with the Commission on April 21, 2014 and incorporated herein by reference).

*10.2		Form of Change in Control Employment Agreement between the Company and its executive officers (filed as Exhibit 10.2 to Hancock’s Form 8-K filed with the Commission on June 20, 2014 and incorporated herein by reference).

***10.3		Addemdum to Nonqualified Deferred Compensation Plan describing SERP benefit.

***10.4		Form of 2014 Restricted Stock Award Agreement.

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

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

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

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

*101		XBRL Interactive Data.

*	Compensatory plan or arrangement

**	Filed herewith

SIGNATURES

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


Hancock Holding Company

By:		/s/ Carl J. Chaney
		Carl J. Chaney
		President & Chief Executive Officer

		/s/ John M. Hairston
		John M. Hairston
		Chief Executive Officer & Chief Operating Officer

		/s/ Michael M. Achary
		Michael M. Achary
		Chief Financial Officer

Date: August 8, 2014

Index to Exhibits


Exhibit Number		Description

*10.1		Hancock Holding Company 2014 Long Term Incentive Plan (filed as Exhibit 10.1 to Hancock’s Form 8-K filed with the Commission on April 21, 2014 and incorporated herein by reference).

*10.2		Form of Change in Control Employment Agreement between the Company and its executive officers (filed as Exhibit 10.2 to Hancock’s Form 8-K filed with the Commission on June 20, 2014 and incorporated herein by reference).

***10.3		Addemdum to Nonqualified Deferred Compensation Plan describing SERP benefit.

***10.4		Form of 2014 Restricted Stock Award Agreement.

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

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

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

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

*101		XBRL Interactive Data.

*	Compensatory plan or arrangement

**	Filed herewith

TABLE OF CONTENTS

Part I. Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6. Exhibits

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company