HWC 10-Q Quarterly Report Sept. 30, 2014

HWC 10-Q Quarter ended Sept. 30, 2014

HANCOCK WHITNEY CORP

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10-Q 1 d788200d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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. 81,568,836 common shares were outstanding as of November 1, 2014.

Hancock Holding Company

Index


Part I. Financial Information		Page Number

ITEM 1. Financial Statements

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

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

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

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

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

	Notes to Consolidated Financial Statements (unaudited) — September 30, 2014		6-47

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			48-74

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			74

ITEM 4. Controls and Procedures			75

Part II. Other Information

ITEM 1. Legal Proceedings			75

ITEM1A. Risk Factors			75

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			76

ITEM 3. Default on Senior Securities			N/A

ITEM 4. Mine Safety Disclosures			N/A

ITEM 5. Other Information			N/A

ITEM 6. Exhibits			76

Signatures			78

Part I. Financial Information

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)


	September 30,			December 31,
	2014			2013
	unaudited
ASSETS
Cash and due from banks	$	332,359		$	348,440
Interest-bearing bank deposits		467,218			267,236
Federal funds sold		4,340			1,604
Securities available for sale, at fair value (amortized cost of $1,640,299 and $1,408,780)		1,662,410			1,421,772
Securities held to maturity (fair value of $2,253,219 and $2,576,584)		2,250,960			2,611,352
Loans held for sale		15,098			24,515
Loans		13,348,574			12,324,817
Less: allowance for loan losses		(125,572	)		(133,626	)

Loans, net		13,223,002			12,191,191

Property and equipment, net of accumulated depreciation of $187,692 and $172,798		407,987			432,346
Prepaid expenses		66,996			65,220
Other real estate, net		55,898			76,668
Accrued interest receivable		44,164			42,977
Goodwill		621,193			625,675
Other intangible assets, net		139,256			159,773
Life insurance contracts		422,562			381,437
FDIC loss share receivable		81,906			113,834
Deferred tax asset, net		60,323			89,708
Other assets		130,278			155,503

Total assets	$	19,985,950		$	19,009,251

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	5,866,255		$	5,530,253
Interest-bearing transaction, savings, money market and time		9,870,439			9,830,263

Total deposits		15,736,694			15,360,516

Short-term borrowings		1,171,809			657,960
Long-term debt		376,452			385,826
Accrued interest payable		5,663			4,353
Other liabilities		185,990			175,527

Total liabilities		17,476,608			16,584,182

Stockholders’ equity
Common stock - $3.33 par value per share; 350,000,000 shares authorized, 81,566,640 and 82,237,162 shares outstanding		271,617			273,850
Capital surplus		1,560,912			1,558,432
Retained earnings		703,506			628,166
Accumulated other comprehensive (loss), net		(26,693	)		(35,379	)

Total stockholders’ equity		2,509,342			2,425,069

Total liabilities and stockholders’ equity	$	19,985,950		$	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						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Interest income:
Loans, including fees	$	150,481		$	158,715		$	453,066		$	478,751
Loans held for sale		197			177			544			774
Securities-taxable		20,824			21,318			64,601			62,242
Securities-tax exempt		954			1,176			2,946			3,615
Federal funds sold and other short term investments		245			253			685			1,178

Total interest income		172,701			181,639			521,842			546,560

Interest expense:
Deposits		5,828			5,851			16,431			18,785
Short-term borrowings		238			1,074			2,109			3,448
Long-term debt and other interest expense		3,094			3,184			9,421			9,603

Total interest expense		9,160			10,109			27,961			31,836

Net interest income		163,541			171,530			493,881			514,724
Provision for loan losses		9,468			7,569			24,122			25,404

Net interest income after provision for loan losses		154,073			163,961			469,759			489,320

Noninterest income:
Service charges on deposit accounts		20,000			20,519			57,981			59,398
Trust fees		11,530			9,477			33,267			27,972
Bank card and ATM fees		11,641			12,221			33,806			34,678
Investment and annuity fees		5,506			5,186			15,555			14,955
Secondary mortgage market operations		2,313			2,467			6,036			10,989
Insurance commissions and fees		1,979			3,661			7,611			12,500
Amortization of FDIC loss share receivable		(2,760	)		(590	)		(9,989	)		(590	)
Other income		7,732			10,116			26,771			27,239

Total noninterest income		57,941			63,057			171,038			187,141

Noninterest expense:
Compensation expense		69,207			73,037			204,900			215,715
Employee benefits		11,957			16,340			38,812			49,184

Personnel expense		81,164			89,377			243,712			264,899

Net occupancy expense		10,848			12,369			32,983			37,099
Equipment expense		4,619			5,127			12,958			15,347
Data processing expense		13,004			12,031			38,310			36,346
Professional services expense		7,229			10,899			22,817			27,571
Amortization of intangibles		6,570			7,306			20,352			22,292
Telecommunications and postage		3,648			4,397			11,094			13,484
Deposit insurance and regulatory fees		2,967			3,789			8,677			11,635
Other real estate expense, net		(104	)		2,439			1,757			6,502
Other expense		19,134			34,471			60,259			68,882

Total noninterest expense		149,079			182,205			452,919			504,057

Income before income taxes		62,935			44,813			187,878			172,404
Income taxes		16,382			11,611			52,248			43,764

Net income	$	46,553		$	33,202		$	135,630		$	128,640

Basic earnings per common share	$	0.56		$	0.40		$	1.62		$	1.51

Diluted earnings per common share	$	0.56		$	0.40		$	1.62		$	1.51

Dividends paid per share	$	0.24		$	0.24		$	0.72		$	0.72

Weighted average shares outstanding-basic		81,721			82,091			81,965			83,404

Weighted average shares outstanding-diluted		81,942			82,205			82,204			83,496

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014		2013
Net income	$	46,553		$	33,202		$	135,630	$	128,640
Other comprehensive income:
Net change in unrealized (losses) gains		(6,293	)		(9,685	)		9,119		(96,074	)
Reclassification adjustment for net (gains) losses realized and included in earnings		(6	)		1,553			2,195		5,835
Amortization of unrealized net gain (loss) on securities transferred to held to maturity		892			(1,456	)		2,463		(7,099	)

Other comprehensive (expense) income, before income taxes		(5,407	)		(9,588	)		13,777		(97,338	)
Income tax (benefit) expense		(2,005	)		(3,512	)		5,091		(35,492	)

Other comprehensive (loss) income net of income taxes		(3,402	)		(6,076	)		8,686		(61,846	)

Comprehensive income	$	43,151		$	27,126		$	144,316	$	66,794

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)


	Common Stock						Capital			Retained			Accumulated Other Comprehensive 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		—			—			—			128,640			—			128,640
Other comprehensive income		—			—			—			—			(61,846	)		(61,846	)

Comprehensive income		—			—			—			128,640			(61,846	)		66,794
Cash dividends declared ($0.72 per common share)		—			—			—			(61,000	)		—			(61,000	)
Common stock activity, long-term incentive plan		76,801			256			12,114			—			—			12,370
Purchase of common stock		(2,817,640	)		(9,383	)		(105,617	)		—			—			(115,000	)

Balance, September 30, 2013		82,106,957		$	273,416		$	1,554,135		$	613,662		$	(84,771	)	$	2,356,442

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

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

Comprehensive income		—			—			—			135,630			8,686			144,316
Cash dividends declared ($0.72 per common share)		—			—			—			(60,290	)		—			(60,290	)
Common stock activity, long-term incentive plan		224,963			749			9,465			—			—			10,214
Purchase of common stock		(895,485	)		(2,982	)		(6,985	)		—			—			(9,967	)

Balance, September 30, 2014		81,566,640		$	271,617		$	1,560,912		$	703,506		$	(26,693	)	$	2,509,342

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	135,630		$	128,640
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		22,976			24,178
Provision for loan losses		24,122			25,404
(Gain) loss on other real estate owned		(34	)		3,519
Deferred tax expense		24,295			20,807
Increase in cash surrender value of life insurance contracts		(6,960	)		(8,764	)
Gain on disposal of other assets		(1,411	)		—
Write-downs on closed branch transfers to other real estate owned		2,683			8,450
Net decrease in loans originated for sale		7,017			35,497
Net amortization of securities premium/discount		12,891			27,095
Amortization of intangible assets		20,352			22,292
Amortization of FDIC indemnification asset		9,989			590
Stock-based compensation expense		10,514			10,435
(Decrease ) increase in interest payable and other liabilities		(9,132	)		7,673
Net payments (to) from FDIC		(366	)		60,886
Decrease (increase) in FDIC loss share receivable		7,729			(7,108	)
Decrease in other assets		21,086			43,091
Other, net		6,256			8,502

Net cash provided by operating activities		287,637			411,187

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale		1,301			—
Proceeds from maturities of securities available for sale		218,351			510,886
Purchases of securities available for sale		(440,187	)		(1,017,578	)
Proceeds from maturities of securities held to maturity		358,649			419,334
Purchases of securities held to maturity		(1,031	)		(450,661	)
Net (increase) decrease in interest-bearing bank deposits		(199,982	)		1,052,369
Net increase in federal funds sold and short-term investments		(2,736	)		(14,493	)
Net increase in loans		(1,060,864	)		(229,913	)
Purchase of life insurance contracts		(30,000	)		—
Purchases of property and equipment		(14,370	)		(25,855	)
Proceeds from sales of property and equipment		8,607			—
Proceeds from sales of other real estate		42,913			70,220
Other, net		4,273			(7,280	)

Net cash (used in) provided by investing activities		(1,115,076	)		307,029

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		376,178			(689,317	)
Net increase in short-term borrowings		513,849			143,646
Repayments of long-term debt		(26,558	)		(26,469	)
Issuance of long-term debt		17,184			6,544
Dividends paid		(60,290	)		(61,000	)
Repurchase of common stock		(9,967	)		(115,000	)
Proceeds from exercise of stock options		962			582

Net cash provided by (used in) financing activities		811,358			(741,014	)

NET DECREASE IN CASH AND DUE FROM BANKS		(16,081	)		(22,798	)
CASH AND DUE FROM BANKS, BEGINNING		348,440			448,491

CASH AND DUE FROM BANKS, ENDING	$	332,359		$	425,693

SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans	$	23,920		$	42,070
Transfers from available for sale securities to held to maturity securities	$	—		$	983,162

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):


Securities Available for Sale
	September 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	$	300,257	$	446	$	1	$	300,702	$	504	$	2	$	1	$	505
Municipal obligations		18,495		272		—		18,767		35,809		177		25		35,961
Mortgage-backed securities		1,218,982		27,566		5,325		1,241,223		1,262,633		24,402		10,077		1,276,958
CMOs		90,281		—		1,723		88,558		96,369		—		2,244		94,125
Corporate debt securities		3,500		—		—		3,500		3,500		—		—		3,500
Equity securities		8,784		877		1		9,660		9,965		785		27		10,723

	$	1,640,299	$	29,161	$	7,050	$	1,662,410	$	1,408,780	$	25,366	$	12,374	$	1,421,772


Securities Held to Maturity
	September 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		183,379		2,911		1,709		184,581		193,189		919		6,436		187,672
Mortgage-backed securities		926,163		12,426		1,258		937,331		1,003,327		296		4,671		998,952
CMOs		1,141,418		5,888		15,999		1,131,307		1,314,836		1,062		26,254		1,289,644

	$	2,250,960	$	21,225	$	18,966	$	2,253,219	$	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 September 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		Fair
	Cost		Value
Debt Securities Available for Sale
Due in one year or less	$	307,762	$	308,233
Due after one year through five years		153,025		152,887
Due after five years through ten years		218,513		225,794
Due after ten years		952,215		965,836

Total available for sale debt securities	$	1,631,515	$	1,652,750


	Amortized		Fair
	Cost		Value
Debt Securities Held to Maturity
Due in one year or less	$	5,302	$	5,317
Due after one year through five years		638,277		626,915
Due after five years through ten years		100,941		99,697
Due after ten years		1,506,440		1,521,290

Total held to maturity securities	$	2,250,960	$	2,253,219

The Company held no securities classified as trading at September 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):


September 30, 2014	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
US Treasury and government agency securities	$	163	$	1	$	25	$	—	$	188	$	1
Municipal obligations		—		—		—		—		—		—
Mortgage-backed securities		64,485		514		125,977		4,811		190,462		5,325
CMOs		48,604		324		39,954		1,399		88,558		1,723
Equity securities		—		—		3		1		3		1

	$	113,252	$	839	$	165,959	$	6,211	$	279,211	$	7,050

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities (continued)


December 31, 2013	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	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
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):


Held to maturity
September 30, 2014	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Municipal obligations	$	2,812	$	54	$	55,817	$	1,655	$	58,629	$	1,709
Mortgage-backed securities		—		—		128,802		1,258		128,802		1,258
CMOs		68,903		350		557,747		15,649		626,650		15,999

	$	71,715	$	404	$	742,366	$	18,562	$	814,081	$	18,966



December 31, 2013	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Municipal 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 $3.0 billion at September 30, 2014 and $3.1 billion at December 31, 2013 were pledged as collateral primarily to secure public deposits or securities sold under agreements to repurchase.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses

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


	September 30,		December 31,
	2014		2013
	(In thousands)
Originated loans:
Commercial non-real estate	$	4,806,740	$	4,113,837
Construction and land development		974,442		752,381
Commercial real estate		2,245,855		2,022,528
Residential mortgages		1,635,462		1,196,256
Consumer		1,623,069		1,409,130

Total originated loans	$	11,285,568	$	9,494,132

Acquired loans:
Commercial non-real estate	$	769,226	$	926,997
Construction and land development		110,294		142,931
Commercial real estate		813,429		967,148
Residential mortgages		37,739		315,340
Consumer		51,488		119,603

Total acquired loans	$	1,782,176	$	2,472,019

Covered loans:
Commercial non-real estate	$	11,171	$	23,390
Construction and land development		11,166		20,229
Commercial real estate		41,550		53,165
Residential mortgages		185,289		209,018
Consumer		31,654		52,864

Total covered loans	$	280,830	$	358,666

Total loans:
Commercial non-real estate	$	5,587,137	$	5,064,224
Construction and land development		1,095,902		915,541
Commercial real estate		3,100,834		3,042,841
Residential mortgages		1,858,490		1,720,614
Consumer		1,706,211		1,581,597

Total loans	$	13,348,574	$	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 common risk characteristics such as loan type, credit risk ratings, and contractual interest rate and repayment terms. The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, residential mortgage loans, and consumer loans, with further segregation within certain loan types as 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 common 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 estimated 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 nine months ended September 30, 2014 and 2013 (in thousands):


	Nine Months Ended
	September 30,			September 30,
	2014			2013
Balance, January 1	$	113,834		$	177,844
Amortization		(9,989	)		(590	)
Charge-offs, write-downs and other losses (recoveries)		(793	)		(190	)
External expenses qualifying under loss share agreement		3,325			7,918
Changes due to changes in cash flow projections		(14,569	)		—
Settlement of disallowed loss claims		(10,268	)		—
Net payments to (from) FDIC		366			(60,886	)

Ending balance	$	81,906		$	124,096

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. During the third quarter, the settlement was paid and the FDIC began payment of claims. The total due from the FDIC for the period December 2013 through August 2014 is $21.1 million.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

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


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

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

Ending balance:
Individually evaluated for impairment	$	24		$	250		$	98		$	382		$	—		$	754
Collectively evaluated for impairment		34,424			6,686			16,296			8,865			14,796			81,067
Loans:
Ending balance:	$	4,806,740		$	974,442		$	2,245,855		$	1,635,462		$	1,623,069		$	11,285,568
Individually evaluated for impairment		5,582			6,617			14,486			2,712			—			29,397
Collectively evaluated for impairment		4,801,158			967,825			2,231,369			1,632,750			1,623,069			11,256,171

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

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

Ending balance:
Individually evaluated for impairment	$	92		$	426		$	46		$	—		$	—		$	564
Amounts related to acquired-impaired loans		—			—			—			—			—			—
Collectively evaluated for impairment		7,311			1,020			45			(4	)		182			8,554
Loans:
Ending balance:	$	769,226		$	110,294		$	813,429		$	37,739		$	51,488		$	1,782,176
Individually evaluated for impairment		931			2,284			458			28			—			3,701
Acquired-impaired loans		4,064			19,200			27,392			5,038			143			55,837
Collectively evaluated for impairment		764,231			88,810			785,579			32,673			51,345			1,722,638

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


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

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

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—
Amounts related to acquired-impaired loans		1,028			1,267			5,314			22,183			4,841			34,633
Collectively evaluated for impairment		—			—			—			—			—			—
Loans:
Ending balance:	$	11,171		$	11,166		$	41,550		$	185,289		$	31,654		$	280,830
Individually evaluated for impairment		—			—			—			—			—			—
Acquired-impaired loans		11,171			11,166			41,550			185,289			31,654			280,830
Collectively evaluated for impairment		—			—			—			—			—			—

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

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

Ending balance:
Individually evaluated for impairment	$	116		$	676		$	144		$	382		$	—		$	1,318
Amounts related to acquired-impaired loans		1,028			1,267			5,314			22,183			4,841			34,633
Collectively evaluated for impairment		41,735			7,706			16,341			8,861			14,978			89,621
Loans:
Ending balance:	$	5,587,137		$	1,095,902		$	3,100,834		$	1,858,490		$	1,706,211		$	13,348,574
Individually evaluated for impairment		6,513			8,901			14,944			2,740			—			33,098
Acquired-impaired loans		15,235			30,366			68,942			190,327			31,797			336,667
Collectively evaluated for impairment		5,565,389			1,056,635			3,016,948			1,665,423			1,674,414			12,978,809

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
(In thousands)	Nine Months Ended September 30, 2013
Originated loans
Allowance for loan losses:
Beginning balance	$	20,775		$	11,415		$	26,959		$	6,406		$	13,219		$	78,774
Charge-offs		(5,199	)		(7,548	)		(3,718	)		(1,549	)		(13,372	)		(31,386	)
Recoveries		3,381			1,243			2,340			991			4,336			12,291
Net provision for loan losses		11,152			2,072			(3,698	)		64			8,152			17,742

Ending balance	$	30,109		$	7,182		$	21,883		$	5,912		$	12,335		$	77,421

Ending balance:
Individually evaluated for impairment	$	325		$	211		$	946		$	—		$	—		$	1,482
Collectively evaluated for impairment		29,784			6,971			20,937			5,912			12,335			75,939
Loans:
Ending balance:	$	3,633,490		$	738,983		$	1,816,402		$	1,124,649		$	1,387,243		$	8,700,767
Individually evaluated for impairment		8,911			16,044			21,170			—			—			46,125
Collectively evaluated for impairment		3,624,579			722,939			1,795,232			1,124,649			1,387,243			8,654,642

Acquired loans
Allowance for loan losses:
Beginning balance	$	788		$	—		$	—		$	—		$	—		$	788
Charge-offs		—			—			—			—			—			—
Recoveries		—			—			—			—			—			—
Net provision for loan losses		(788	)		—			463			—			—			(325	)

Ending balance	$	—		$	—		$	463		$	—		$	—		$	463

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	463		$	—		$	—		$	463
Amounts related to acquired-impaired loans		—			—			—			—			—			—
Collectively evaluated for impairment		—			—			—			—			—			—
Loans:
Ending balance:	$	967,485		$	158,228		$	1,038,287		$	347,054		$	130,649		$	2,641,703
Individually evaluated for impairment		2,179			730			2,371			502			—			5,782
Acquired-impaired loans		18,967			15,080			25,432			5,387			105			64,971
Collectively evaluated for impairment		946,339			142,418			1,010,484			341,165			130,544			2,570,950

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
(In thousands)	Nine Months Ended September 30, 2013
Covered loans
Allowance for loan losses:
Beginning balance	$	2,162		$	5,623		$	9,433		$	30,471		$	8,920		$	56,609
Charge-offs		(681	)		(1,784	)		(4,316	)		(947	)		(1,145	)		(8,873	)
Recoveries		90			554			2,395			13			67			3,119
Net provision for loan losses		(328	)		(1,600	)		1,197			4,723			3,995			7,987
Increase (Decrease) in FDIC loss share receivable		447			(314	)		(732	)		1,261			835			1,497

Ending balance	$	1,690		$	2,479		$	7,977		$	35,521		$	12,672		$	60,339

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—
Amounts related to acquired-impaired loans		1,690			2,479			7,977			35,521			12,672			60,339
Collectively evaluated for impairment		—			—			—			—			—			—
Loans:
Ending balance:	$	24,340		$	23,197		$	60,280		$	223,494		$	60,691		$	392,002
Individually evaluated for impairment		—			—			—			—			—			—
Acquired-impaired loans		24,340			23,197			60,280			223,494			60,691			392,002
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		(5,880	)		(9,332	)		(8,034	)		(2,496	)		(14,517	)		(40,259	)
Recoveries		3,471			1,797			4,735			1,004			4,403			15,410
Net provision for loan losses		10,036			472			(2,038	)		4,787			12,147			25,404
Increase (Decrease) in FDIC loss share receivable		447			(314	)		(732	)		1,261			835			1,497

Ending balance	$	31,799		$	9,661		$	30,323		$	41,433		$	25,007		$	138,223

Ending balance:
Individually evaluated for impairment	$	325		$	211		$	1,409		$	—		$	—		$	1,945
Amounts related to acquired-impaired loans		1,690			2,479			7,977			35,521			12,672			60,339
Collectively evaluated for impairment		29,784			6,971			20,937			5,912			12,335			75,939
Loans:
Ending balance:	$	4,625,315		$	920,408		$	2,914,969		$	1,695,197		$	1,578,583		$	11,734,472
Individually evaluated for impairment		11,090			16,774			23,541			502			—			51,907
Acquired-impaired loans		43,307			38,277			85,712			228,881			60,796			456,973
Collectively evaluated for impairment		4,570,918			865,357			2,805,716			1,465,814			1,517,787			11,225,592

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.


	September 30,		December 31,
Nonaccrual Loans	2014		2013
	(In thousands)
Originated loans:
Commercial non-real estate	$	9,279	$	10,119
Construction and land development		6,083		13,171
Commercial real estate		26,432		32,772
Residential mortgages		21,326		13,449
Consumer		5,242		4,802

Total originated loans	$	68,362	$	74,313

Acquired loans:
Commercial non-real estate	$	1,857	$	3,209
Construction and land development		3,275		1,990
Commercial real estate		4,210		6,525
Residential mortgages		1,353		8,262
Consumer		877		1,814

Total acquired loans	$	11,572	$	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		394		544
Consumer		180		296

Total covered loans	$	3,220	$	3,544

Total loans:
Commercial non-real estate	$	11,136	$	13,330
Construction and land development		10,897		16,700
Commercial real estate		31,749		40,460
Residential mortgages		23,073		22,255
Consumer		6,299		6,912

Total loans	$	83,154	$	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 nine months ended September 30, 2014 was approximately $1 million. Interest actually received and recorded as income on nonaccrual loans during the nine months ended September 30, 2014 was approximately $1 million.

Nonaccrual loans include loans modified in troubled debt restructurings (TDRs) of $10 million. Total TDRs were $18 million as of September 30, 2014 and $25 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 nine months ended September 30, 2014 and September 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.


	Nine Months Ended
	September 30, 2014						September 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	$	925	$	920
Construction and land development		—		—		—		—		—		—
Commercial real estate		2		2,430		2,385		5		1,844		1,789
Residential mortgages		4		1,495		848		2		971		854
Consumer		—		—		—		—		—		—

Total originated loans		6	$	3,925	$	3,233		8	$	3,740	$	3,563

Acquired 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	$	925	$	920
Construction and land development		—		—		—		—		—		—
Commercial real estate		2		2,430		2,385		6		2,356		2,290
Residential mortgages		4		1,495		848		3		1,486		1,347
Consumer		—		—		—		—		—		—

Total loans		6	$	3,925	$	3,233		10	$	4,767	$	4,557

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Nine Months Ended
	September 30, 2014				September 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		—		—		—		—
Residential mortgages		—		—		—		—
Consumer		—		—		—		—

Total originated loans		1	$	909		—	$	—

Acquired 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		—		—		—		—
Residential mortgages		—		—		—		—
Consumer		—		—		—		—

Total loans		1	$	909		—	$	—

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 September 30, 2014 and December 31, 2013:


September 30, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Originated loans:
With no related allowance recorded:
Commercial non-real estate	$	1,498	$	2,111	$	—	$	1,157	$	31
Construction and land development		3,320		5,459		—		3,218		112
Commercial real estate		10,502		13,011		—		8,428		246
Residential mortgages		263		647		—		88		1
Consumer		—		—		—		—		—

		15,583		21,228		—		12,891		390
With an allowance recorded:
Commercial non-real estate	$	4,084	$	4,173	$	24	$	5,922		77
Construction and land development		3,297		3,815		250		6,578		100
Commercial real estate		3,984		4,304		98		7,417		75
Residential mortgages		2,449		2,758		382		2,189		28
Consumer		—		—		—		—		—

		13,814		15,050		754		22,106		280
Total:
Commercial non-real estate		5,582		6,284		24		7,079		108
Construction and land development		6,617		9,274		250		9,796		212
Commercial real estate		14,486		17,315		98		15,845		321
Residential mortgages		2,712		3,405		382		2,277		29
Consumer		—		—		—		—		—

Total originated loans	$	29,397	$	36,278	$	754	$	34,997	$	670

Acquired loans:
With no related allowance recorded:
Commercial non-real estate	$	—	$	1,730	$	—	$	357	$	—
Construction and land development		—		—		—		121		—
Commercial real estate		—		—		—		311		—
Residential mortgages		28		68		—		88		—
Consumer		—		—		—		—		—

		28		1,798		—		877		—
With an allowance recorded:
Commercial non-real estate		931		1,070		92	$	1,304		118
Construction and land development		2,284		4,835		426		1,130		45
Commercial real estate		458		493		46		1,305		61
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		3,673		6,398		564		3,739		224
Total:
Commercial non-real estate		931		2,800		92		1,661		118
Construction and land development		2,284		4,835		426		1,251		45
Commercial real estate		458		493		46		1,616		61
Residential mortgages		28		68		—		88		—
Consumer		—		—		—		—		—

Total acquired loans	$	3,701	$	8,196	$	564	$	4,616	$	224

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


September 30, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income 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	$	1,498	$	3,841	$	—	$	1,514	$	31
Construction and land development		3,320		5,459		—		3,339		112
Commercial real estate		10,502		13,011		—		8,739		246
Residential mortgages		291		715		—		176		1
Consumer		—		—		—		—		—

		15,611		23,026		—		13,768		390
With an allowance recorded:
Commercial non-real estate		5,015		5,243		116		7,226		195
Construction and land development		5,581		8,650		676		7,708		145
Commercial real estate		4,442		4,797		144		8,722		136
Residential mortgages		2,449		2,758		382		2,189		28
Consumer		—		—		—		—		—

		17,487		21,448		1,318		25,845		504
Total:
Commercial non-real estate		6,513		9,084		116		8,740		226
Construction and land development		8,901		14,109		676		11,047		257
Commercial real estate		14,944		17,808		144		17,461		382
Residential mortgages		2,740		3,473		382		2,365		29
Consumer		—		—		—		—		—

Total loans	$	33,098	$	44,474	$	1,318	$	39,613	$	894

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


December 31, 2013	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income 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 September 30, 2014 and December 31, 2013:


													Recorded
					Greater than								investment
	30-59 days		60-89 days		90 days		Total				Total		> 90 days
September 30, 2014	past due		past due		past due		past due		Current		Loans		and still accruing
							(In thousands)
Originated loans:
Commercial non-real estate	$	4,137	$	4,039	$	3,111	$	11,287	$	4,795,453	$	4,806,740	$	259
Construction and land development		1,159		651		6,185		7,995		966,447		974,442		1,443
Commercial real estate		3,524		2,170		12,271		17,965		2,227,890		2,245,855		257
Residential mortgages		606		5,071		10,503		16,180		1,619,282		1,635,462		220
Consumer		4,539		2,556		4,290		11,385		1,611,684		1,623,069		2,970

Total	$	13,965	$	14,487	$	36,360	$	64,812	$	11,220,756	$	11,285,568	$	5,149

Acquired loans:
Commercial non-real estate	$	151	$	95	$	1,734	$	1,980	$	767,246	$	769,226	$	—
Construction and land development		231		1,649		1,400		3,280		107,014		110,294		17
Commercial real estate		522		641		3,534		4,697		808,732		813,429		1,471
Residential mortgages		27		—		228		255		37,484		37,739		—
Consumer		358		241		593		1,192		50,296		51,488		30

Total	$	1,289	$	2,626	$	7,489	$	11,404	$	1,770,772	$	1,782,176	$	1,518

Covered loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	11,171	$	11,171	$	—
Construction and land development		—		—		—		—		11,166		11,166		—
Commercial real estate		—		—		—		—		41,550		41,550		—
Residential mortgages		—		149		—		149		185,140		185,289		—
Consumer		1		—		35		36		31,618		31,654		—

Total	$	1	$	149	$	35	$	185	$	280,645	$	280,830	$	—

Total loans:
Commercial non-real estate	$	4,288	$	4,134	$	4,845	$	13,267	$	5,573,870	$	5,587,137	$	259
Construction and land development		1,390		2,300		7,585		11,275		1,084,627		1,095,902		1,460
Commercial real estate		4,046		2,811		15,805		22,662		3,078,172		3,100,834		1,728
Residential mortgages		633		5,220		10,731		16,584		1,841,906		1,858,490		220
Consumer		4,898		2,797		4,918		12,613		1,693,598		1,706,211		3,000

Total	$	15,255	$	17,262	$	43,884	$	76,401	$	13,272,173	$	13,348,574	$	6,667

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 still 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 September 30, 2014 and December 31, 2013.

Commercial Non-Real Estate Credit Exposure

Credit Risk Profile Based on Payment Activity


	September 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
			(In thousands)								(In thousands)
Grade:
Pass	$	4,656,899	$	698,111	$	1,856	$	5,356,866	$	3,990,320	$	846,134	$	10,477	$	4,846,931
Pass-Watch		58,894		32,372		—		91,266		46,734		44,105		9		90,848
Special Mention		26,869		26,635		521		54,025		41,812		19,915		2,897		64,624
Substandard		63,959		12,108		8,794		84,861		34,276		16,125		9,662		60,063
Doubtful		119		—		—		119		695		718		345		1,758
Loss		—		—		—		—		—		—		—		—

Total	$	4,806,740	$	769,226	$	11,171	$	5,587,137	$	4,113,837	$	926,997	$	23,390	$	5,064,224


Construction Credit Exposure Credit Risk Profile Based on Payment Activity

	September 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
			(In thousands)								(In thousands)
Grade:
Pass	$	923,800	$	82,067	$	2,323	$	1,008,190	$	709,261	$	112,773	$	1	$	822,035
Pass-Watch		17,576		2,911		1,000		21,487		7,817		1,907		1,226		10,950
Special Mention		5,832		5,737		29		11,598		3,926		9,409		276		13,611
Substandard		27,234		19,579		7,814		54,627		31,377		18,842		11,498		61,717
Doubtful		—		—		—		—		—		—		7,228		7,228
Loss		—		—		—		—		—		—		—		—

Total	$	974,442	$	110,294	$	11,166	$	1,095,902	$	752,381	$	142,931	$	20,229	$	915,541


Commercial Real Estate Credit Exposure Credit Risk Profile by Internally Assigned Grade

	September 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
			(In thousands)								(In thousands)
Grade:
Pass	$	2,048,886	$	758,092	$	6,805	$	2,813,783	$	1,864,115	$	896,578	$	1,678	$	2,762,371
Pass-Watch		83,729		8,725		5,811		98,265		49,578		9,530		10,266		69,374
Special Mention		25,842		9,029		863		35,734		15,785		19,798		1,999		37,582
Substandard		87,369		37,583		28,039		152,991		93,034		41,242		31,350		165,626
Doubtful		29		—		32		61		16		—		7,872		7,888
Loss		—		—		—		—		—		—		—		—

Total	$	2,245,855	$	813,429	$	41,550	$	3,100,834	$	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


	September 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
			(In thousands)								(In thousands)
Performing	$	1,624,959	$	37,511	$	185,289	$	1,847,759	$	1,182,266	$	307,078	$	209,015	$	1,698,359
Nonperforming		10,503		228		—		10,731		13,990		8,262		3		22,255

Total	$	1,635,462	$	37,739	$	185,289	$	1,858,490	$	1,196,256	$	315,340	$	209,018	$	1,720,614


Consumer Credit Exposure Credit Risk Profile Based on Payment Activity

	September 30, 2014								December 31, 2013
	Originated		Acquired		Covered		Total		Originated		Acquired		Covered		Total
			(In thousands)								(In thousands)
Performing	$	1,618,779	$	50,895	$	31,619	$	1,701,293	$	1,404,032	$	117,789	$	52,864	$	1,574,685
Nonperforming		4,290		593		35		4,918		5,098		1,814		—		6,912

Total	$	1,623,069	$	51,488	$	31,654	$	1,706,211	$	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’s loan portfolio. 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.

•

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

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

Residential and Consumer:

•

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

•

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

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


	September 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		(92,890	)		(953	)		(47,979	)		(28,487	)		(189,987	)		(1,298	)		(116,187	)		(47,330	)
Accretion		15,054			(15,054	)		35,741			(35,741	)		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		—			1,783			—			(380	)		—			(17,433	)		—			3,894
Net transfers from nonaccretable difference to accretable yield		—			11,917			—			19,076			—			58,682			—			14,681

Balance at end of period	$	280,830		$	120,408		$	55,837		$	85,838		$	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.


	September 30, 2014
	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	300,702	$	—	$	300,702
Municipal obligations		—		18,767		18,767
Corporate debt securities		3,500		—		3,500
Mortgage-backed securities		—		1,241,223		1,241,223
Collateralized mortgage obligations		—		88,558		88,558
Equity securities		9,660		—		9,660

Total available for sale securities		313,862		1,348,548		1,662,410

Derivative assets (1)		—		16,012		16,012

Total recurring fair value measurements - assets	$	313,862	$	1,364,560	$	1,678,422

Liabilities
Derivative liabilities (1)	$	—	$	16,440	$	16,440

Total recurring fair value measurements - liabilities	$	—	$	16,440	$	16,440

(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)


	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.

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 and five. 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.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)

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

Fair Value of Assets Measured on a Nonrecurring Basis

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

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

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.


	September 30, 2014
	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	34,482	$	—	$	34,482
Other real estate owned		—		—		20,742		20,742

Total nonrecurring fair value measurements	$	—	$	34,482	$	20,742	$	55,224


	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.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)

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

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

Loans Held for Sale – 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.

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.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)

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


	September 30, 2014
	September 30, 2014						Total		Carrying
	Level 1		Level 2		Level 3		Fair Value		Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	803,917	$	—	$	—	$	803,917	$	803,917
Available for sale securities		313,862		1,348,548		—		1,662,410		1,662,410
Held to maturity securities		—		2,253,219		—		2,253,219		2,250,960
Loans, net		—		34,482		13,081,700		13,116,182		13,223,002
Loans held for sale		—		15,098		—		15,098		15,098
Accrued interest receivable		44,164		—		—		44,164		44,164
Derivative financial instruments		—		16,012		—		16,012		16,012
Financial liabilities:
Deposits	$	—	$	—	$	15,434,876	$	15,434,876	$	15,736,694
Federal funds purchased		7,625		—		—		7,625		7,625
Securities sold under agreements to repurchase		599,184		—		—		599,184		599,184
FHLB borrowings		565,000		—		—		565,000		565,000
Long-term debt		—		344,636		—		344,636		376,452
Accrued interest payable		5,663		—		—		5,663		5,663
Derivative financial instruments		—		16,440		—		16,440		16,440

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value (continued)


	December 31, 2013
	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. 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.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Derivatives (continued)

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 September 30, 2014 and December 31, 2013.


						Fair Values (1)
		Notional Amounts				Assets				Liabilities
	Type of Hedge	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Derivatives not designated as hedging instruments:
Interest rate swaps (2)	N/A	$	753,382	$	650,667	$	14,585	$	14,147	$	14,974	$	13,777
Risk participation agreements	N/A		80,989		19,736		105		2		156		2
Forward commitments to sell residential mortgage loans	N/A		40,873		45,910		56		326		640		115
Interest rate-lock commitments on residential mortgage loans	N/A		28,025		25,956		595		56		27		107
Foreign exchange forward contracts	N/A		37,127		21,299		671		1,048		643		1,005

		$	940,396	$	763,568	$	16,012	$	15,579	$	16,440	$	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.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Derivatives (continued)

Risk participation agreements

The Bank 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.

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 nine-month periods ended September 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 September 30, 2014, the aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position was $6 million, for which the Bank had posted collateral of $17 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 September 30, 2014 and December 31, 2013 is presented in the following tables (in thousands):


			Gross Amounts Offset in		Net Amounts Presented in		Gross Amounts Not Offset in the Statement of Financial
Description	Gross Amounts Recognized		the Statement of Financial Position		the Statement of Financial Position		Financial Instruments		Cash Collateral		Net Amount
As of September 30, 2014
Derivative Assets	$	14,690	$	—	$	14,690	$	2,206	$	—	$	12,484

Total	$	14,690	$	—	$	14,690	$	2,206	$	—	$	12,484

Derivative Liabilities	$	15,129	$	—	$	15,129	$	2,206	$	16,767	$	(3,844	)

Total	$	15,129	$	—	$	15,129	$	2,206	$	16,767	$	(3,844	)

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

On July 16, 2014, the Company’s board of directors approved a stock repurchase plan that authorizes the repurchase of 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. Under this plan, we have repurchased 305,263 shares of our common stock at an average price of $32.65 per share.

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 3 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 this

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Stockholders’ Equity (continued)

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.

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 (loss) gain		(96,070	)		—			—			(4	)		(96,074	)
Transfer of net unrealized gain from AFS to HTM, net of cumulative tax effect		36,208			(36,208	)		—			—			—
Reclassification of net losses realized and included in earnings		—			—			5,534			301			5,835
Amortization of unrealized net gain on securities transferred to HTM		—			(7,099	)		—			—			(7,099	)
Income tax (benefit) expense		(35,115	)		(2,563	)		2,070			116			(35,492	)

Balance, September 30, 2013	$	14,107		$	(21,654	)	$	(77,224	)	$	—		$	(84,771	)

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

Other comprehensive income before income taxes:
Net change in unrealized gain		9,119			—			—			—			9,119
Reclassification of net losses realized and included in earnings		—			—			2,195			—			2,195
Amortization of unrealized net gain on securities transferred to HTM		—			2,463			—			—			2,463
Income tax expense		3,309			879			903			—			5,091

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

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	Nine Months Ended September 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	$	2,463	$	(7,099	)	Interest income
Tax effect		879		(2,563	)	Income taxes

Net of tax		1,584		(4,536	)	Net income

Amortization of defined benefit pension and post-retirement items	$	293	$	5,534		(a) Employee benefits expense
Tax effect		103		2,070		Income taxes

Net of tax		190		3,464		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	$	1,774	$	(876	)	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				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
*Numerator:*
Net income to common shareholders	$	46,553	$	33,202	$	135,630	$	128,640
Net income allocated to participating securities - basic and diluted		883		616		2,783		2,398

Net income allocated to common shareholders - basic and diluted	$	45,670	$	32,586	$	132,847	$	126,242

*Denominator:*
Weighted average common shares - basic		81,721		82,091		81,965		83,404
Dilutive potential common shares		221		114		239		92

Weighted average common shares - diluted		81,942		82,205		82,204		83,496

Earnings per common share:
Basic	$	0.56	$	0.40	$	1.62	$	1.51
Diluted	$	0.56	$	0.40	$	1.62	$	1.51

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 569,404 and 639,486 respectively for the three and nine months ended September 30, 2014 and 721,863 and 1,076,894, respectively, for the three and nine months ended September 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 nine months ended September 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		(32,618	)		29.51
Cancelled/Forfeited		(16,549	)		38.26
Expired		(113,447	)		63.41

Outstanding at September 30, 2014		1,170,042		$	36.74		4.4	$	799

Exercisable at September 30, 2014		885,673		$	38.55		3.6	$	373

The total intrinsic value of options exercised during the nine months ended September 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 September 30, 2014 and changes during the nine months ended September 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		120,396			36.23
Vested		(272,788	)		32.00
Forfeited		(85,873	)		31.69

Nonvested at September 30, 2014		1,743,555		$	32.02

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

8. Share-Based Payment Arrangements (continued)

As of September 30, 2014, there were $31.7 million of total unrecognized compensation expense related to nonvested restricted and performance shares expected to vest. This compensation is expected to be recognized in expense over a weighted average period of 3.1 years. The total fair value of shares which vested during the nine months ended September 30, 2014 and 2013 was $10 million and $1 million, respectively.

During the nine months ended September 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 September 30,
	2014			2013			2014		2013
							Other Post-
	Pension benefits						retirement Benefits
Service cost	$	3,230		$	3,969		$	31	$	52
Interest cost		4,812			4,151			285		327
Expected return on plan assets		(8,056	)		(6,982	)		—		—
Amortization of net loss		7			1,605			91		459

Net periodic benefit cost	$	(7	)	$	2,743		$	407	$	838

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

9. Retirement Plans (continued)


	Nine Months Ended September 30,
	2014			2013			2014		2013
							Other Post-
	Pension benefits						retirement Benefits
Service cost	$	9,690		$	11,905		$	94	$	162
Interest cost		14,438			12,457			855		987
Expected return on plan assets		(24,167	)		(20,946	)		—		—
Amortization of net loss		20			4,813			273		1,320

Net periodic benefit cost	$	(19	)	$	8,229		$	1,222	$	2,469

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					Nine Months Ended
	September 30,					September 30,
	2014			2013		2014		2013
(In thousands)
Income from bank owned life insurance	$	2,377		$	2,656	$	7,048	$	8,764
Credit related fees		2,822			2,995		8,388		5,969
Income from derivatives		191			1,257		1,431		3,296
Net (loss) gain on sale of assets		(56	)		801		1,409		1,277
Safety deposit box income		448			467		1,404		1,480
Other miscellaneous		1,950			1,940		7,091		6,453

Total other noninterest income	$	7,732		$	10,116	$	26,771	$	27,239

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				Nine Months Ended
	September 30,				September 30,
(In thousands)	2014		2013		2014		2013
Advertising	$	2,457	$	2,858	$	6,395	$	7,216
Ad valorem and franchise taxes		3,098		2,809		8,397		7,193
Printing and supplies		1,189		1,143		3,467		3,963
Insurance expense		944		887		3,002		3,018
Travel expense		1,009		1,074		2,966		3,475
Entertainment and contributions		1,396		969		4,337		3,960
Tax credit investment amortization		2,220		4,880		6,590		7,553
Other miscellaneous		6,821		19,851		25,105		32,504

Total other noninterest expense	$	19,134	$	34,471	$	60,259	$	68,882

Other miscellaneous expense for the nine months ended September 30, 2014 as shown in the table above includes nonoperating items totaling $1.1 million in the third quarter of 2014, $7.3 million in the second quarter of 2014 and $12.6 million in the third quarter of 2013. These items are 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. During the third quarter, the settlement was paid and the FDIC began payment of claims.

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 and third quarters of 2014, the Company recorded $3.5 million and $1.1 million, respectively, in write-downs related to the 2014 closure of 15 branch locations in Mississippi, Florida and Louisiana as part of its ongoing branch rationalization process. Of the $3.5 million, $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 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.

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.

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

OVERVIEW

Recent Economic and Industry Developments

October 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, although some concern was expressed that the strength of the dollar has made U.S. exports more expensive internationally. 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. 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, although an increase in interest rates could drastically change the landscape of that industry. 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 mixed. Some of Hancock’s market areas reported growth in activity, while others were slightly down to flat. Inventory levels remained flat or declined year-over-year. The demand for apartments increased, keeping occupancy rates at high levels. Although the outlook for home sales has weakened since the last quarter, this was generally attributed to seasonality and the future outlook remains positive. 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 for apartments throughout the region. Commercial construction activity has increased in these sectors. Continued improvement is expected in the commercial real estate market.

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. On October 29, 2014, the Federal Reserve announced the conclusion of its bond-buying initiative. The Federal Reserve anticipates that it likely will be appropriate to maintain the current federal funds rate for a considerable time after the asset purchase program ends, especially if inflation continues to run below the long-term goal.

Highlights of Third Quarter 2014 Financial Results

Net income in the third quarter of 2014 was $46.6 million, or $0.56 per diluted common share, compared to $40.0 million, or $0.48, in the second quarter of 2014. Net income was $33.2 million, or $0.40 per diluted common share, in the third quarter of 2013. Net income for the third quarter of 2014 reflects the impact of certain nonoperating items totaling $3.9 million. The second quarter of 2014 and third quarter of 2013 included nonoperating items of $12.1 million and $20.9 million, respectively. Net income for the nine months ended September 30, 2014 was $135.6 million, or $1.62 per diluted common share, compared to $128.6 million, or $1.51 per diluted common share, for the nine months ended September 30, 2013.

Operating income for the third quarter of 2014 was $49.1 million or $0.59 per diluted common share, compared to $49.6 million, or $0.59 in the second quarter of 2014. Operating income was $46.8 million, or $0.56, in the third quarter of 2013. For the nine months ended September 30, 2014, operating income was $147.8 million, an increase of $5.6 million, or 4% from the same period 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 third quarter of 2014 results:

•

Revenue remained relatively flat linked quarter despite a $5 million decrease in purchase accounting accretion

•

Operating expenses remained relatively stable and remain below the targeted expense goal for the fourth quarter of 2014

•

Net loan growth of $488 million, or 16%, linked-quarter annualized; approximately $1.7 billion, or 15%, year-over-year loan growth (each excluding the FDIC-covered portfolio)

•

Deposit growth of $492 million, or 13%, linked-quarter annualized

•

Solid capital levels with a tangible common equity (TCE) ratio of 9.10%; approximately $10 million of capital used to repurchase stock during the quarter

•

Return on average assets (ROA) (operating) of 1.00% down from 1.04% in the second quarter of 2014; total assets grew to $20 billion

RESULTS OF OPERATIONS

Net Interest Income

Net interest income taxable equivalent (te) for the third quarter of 2014 was $166.2 million, down $1.1 million from the second quarter of 2014 due to the $5.2 million decline in purchase accounting accretion. Excluding this impact, net interest income increased $4.1 million. The positive impact from a $533 million increase in average earning assets, a better earning asset mix and one more day of interest accruals was partially offset by declining loan and investment securities yields. The increase in average earning assets was primarily due to a $421.2 million, or 3%, growth in loans. For analytical purposes, management adjusts net interest income to a taxable equivalent basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

Net interest income (te) for the third quarter of 2014 was down $7.9 million, or 5%, compared to the third quarter of 2013, primarily due to a $14.1 million reduction in total purchase accounting accretion. A $1.3 billion increase in average loans and a more favorable earning asset mix offset an 18 bps decrease in the loan yield, excluding the net impact of purchase accounting adjustments.

The net interest margin was 3.81% for the third quarter of 2014, down 18 bps from the second quarter of 2014, and down 42 bps from the third quarter of 2013. The current quarter’s core margin of 3.32% (reported net interest income (te) excluding purchase accounting accretion, annualized, as a percent of average earning assets) compressed 3 bps compared to the second quarter of 2014 and 5 bps compared to the third quarter of 2013. The continued decline in the core loan yield (reported interest income (te) on loans, excluding purchase accounting accretion, annualized, as a percent of average total loans) was partially offset by the favorable impact of net loan growth.

The overall reported yield on earning assets was 4.02% in the third quarter of 2014, a decrease of 19 bps from the second quarter of 2014 and 45 bps from the third quarter of 2013. The reported loan portfolio yield of 4.63% for the current quarter was down 23 bps from the second quarter of 2014 and 78 bps from the third quarter of 2013. The core loan yield of 3.94% in the current quarter was down 3 bps from the second quarter of 2014 and 18 bps from a year earlier.

The overall cost of funding earning assets was 0.21% in the third quarter of 2014, down 1 bp from the second quarter of 2014. The linked quarter decrease in the cost of funds was mainly attributable to the June 2014 early redemption of $115 million in fixed rate reverse repurchase obligations with an average rate of 3.43%. This early redemption resulted in a 26 bps reduction in the average rate paid on short-term borrowings compared to the second quarter and offset a 2 bps increase in the overall rate paid on interest-bearing deposits. This increase reflects the initiatives implemented during the second quarter of 2014 to increase deposits in an effort to support the funding for loan growth.

The overall cost of funding earning assets decreased 3 bps from the third quarter of 2013. The mix of funding sources improved in the third quarter of 2014 compared to the third quarter of 2013. Interest-free sources, including noninterest-bearing demand deposits, funded 35.5% of earning assets in the current period, up from 34.0% a year ago.

Net interest income (te) for the first nine months of 2014 totaled $501.9 million, a $20.8 million, or 4%, decrease from the first nine months of 2013. Excluding a $28.8 million decrease in purchase accounting accretion, net interest income was up approximately $8.0 million for the first nine months of 2014 as compared to the same period of 2013. A $487 million, or 3%, increase in average earning assets, a more favorable earning asset mix, a 25 bp increase in investment yields and a 4 bp decrease in the costs of funds offset a 28 bp decrease in the core loan yield.

The reported net interest margin for the first nine months of 2014 was 3.95% compared to 4.24% in 2013, while the core margin declined to 3.35% in 2014 compared to 3.38% 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
	September 30, 2014							June 30, 2014							September 30, 2013
(dollars in millions)	Volume		Interest		Rate			Volume		Interest		Rate			Volume		Interest		Rate
Average earning assets
Commercial & real estate loans (te) (a) (b)	$	9,627.6	$	108.2		4.46	%	$	9,355.2	$	108.2		4.64	%	$	8,581.2	$	109.4		5.06	%
Mortgage loans		1,814.2		20.0		4.41			1,744.3		21.0		4.83			1,653.8		24.8		5.99
Consumer loans		1,660.4		24.0		5.74			1,581.4		23.6		5.99			1,570.3		25.7		6.51
Loan fees & late charges		—		0.4					—		0.8					—		0.7

Total loans (te)		13,102.2		152.6		4.63			12,680.9		153.6		4.86			11,805.3		160.6		5.41

Loans held for sale		16.9		0.1		4.66			14.7		0.1		4.14			16.1		0.2		4.38
US Treasury and agency securities		184.8		0.7		1.47			—		—		0.00			5.6		—		2.34
Mortgage-backed securities and CMOs		3,379.2		19.2		2.27			3,490.9		20.1		2.30			3,874.1		20.3		2.10
Municipals (te) (a)		203.7		2.4		4.62			205.8		2.4		4.63			247.1		2.7		4.39
Other securities		12.3		0.1		2.21			19.8		0.1		1.19			8.5		0.1		2.51

Total securities (te) (c)		3,780.0		22.4		2.36			3,716.5		22.6		2.43			4,135.3		23.1		2.24

Total short-term investments		425.3		0.3		0.23			379.6		0.2		0.22			427.9		0.3		0.23

Average earning assets (te)	$	17,324.4	$	175.4		4.02	%	$	16,791.7	$	176.5		4.21	%	$	16,384.6	$	184.2		4.47	%

Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	6,160.9	$	1.6		0.11	%	$	6,078.1	$	1.5		0.10	%	$	5,919.7	$	1.4		0.09	%
Time deposits		1,955.3		3.1		0.64			2,026.4		3.0		0.60			2,384.3		3.7		0.61
Public funds		1,547.5		1.1		0.27			1,450.3		0.7		0.21			1,302.4		0.7		0.23

Total interest-bearing deposits		9,663.7		5.8		0.24			9,554.8		5.2		0.22			9,606.4		5.8		0.24

Short-term borrowings		1,139.7		0.2		0.08			957.4		0.9		0.34			820.5		1.1		0.52
Long-term debt		375.9		3.2		3.27			380.2		3.1		3.32			385.2		3.2		3.28

Total borrowings		1,515.6		3.4		0.87			1,337.6		4.0		1.19			1,205.7		4.3		1.40

Total interest-bearing liabilities		11,179.3		9.2		0.33	%		10,892.4		9.2		0.34	%		10,812.1		10.1		0.37	%

Net interest-free funding sources		6,145.1							5,899.3							5,572.5

Total cost of funds	$	17,324.4	$	9.2		0.21	%	$	16,791.7	$	9.2		0.22	%	$	16,384.6	$	10.1		0.24	%

Net interest spread (te)			$	166.2		3.69	%			$	167.3		3.87	%			$	174.1		4.10	%
Net interest margin	$	17,324.4	$	166.2		3.81	%	$	16,791.7	$	167.3		3.99	%	$	16,384.6	$	174.1		4.23	%

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

(b)	Includes nonaccrual loans.

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


	Nine Months Ended
	September 30, 2014							September 30, 2013
(dollars in millions)	Volume		Interest		Rate			Volume		Interest		Rate
Average earning assets
Commercial & real estate loans (te) (a) (b)	$	9,361.4	$	324.4		4.63	%	$	8,427.0	$	326.0		5.17	%
Mortgage loans		1,760.1		62.4		4.73			1,615.7		77.4		6.36
Consumer loans		1,601.9		70.8		5.91			1,589.4		78.8		6.63
Loan fees & late charges		—		1.9					—		2.5

Total loans (te)		12,723.4		459.5		4.82			11,632.1		484.7		5.56

Loans held for sale		16.9		0.5		4.29			27.1		0.8		3.72
US Treasury and agency securities		93.1		1.2		1.73			3.8		0.1		1.81
Mortgage-backed securities and CMOs		3,493.5		60.5		2.31			3,918.9		59.6		2.03
Municipals (te) (a)		208.8		7.2		4.60			232.5		7.9		4.53
Other securities		14.8		0.2		2.22			8.3		0.2		2.42

Total securities (te) (c)		3,810.2		69.1		2.42			4,163.5		67.8		2.17

Total short-term investments		403.8		0.7		0.23			644.3		1.2		0.24

Average earning assets (te)	$	16,954.3	$	529.8		4.17	%	$	16,467.0	$	554.5		4.50	%

Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	6,104.0	$	4.6		0.10	%	$	5,955.7	$	4.6		0.10	%
Time deposits		2,049.9		9.3		0.60			2,402.1		11.6		0.64
Public funds		1,508.2		2.5		0.23			1,463.8		2.6		0.24

Total interest-bearing deposits		9,662.1		16.4		0.23			9,821.6		18.8		0.26

Short-term borrowings		962.0		2.1		0.29			791.6		3.4		0.58
Long-term debt		380.7		9.4		3.31			391.7		9.6		3.28

Total borrowings		1,342.7		11.5		1.15			1,183.3		13.0		1.47

Total interest-bearing liabilities		11,004.8		27.9		0.34	%		11,004.9		31.8		0.39	%

Net interest-free funding sources		5,949.5							5,462.1

Total cost of funds	$	16,954.3	$	27.9		0.22	%	$	16,467.0	$	31.8		0.26	%

Net interest spread (te)			$	501.9		3.83	%			$	522.7		4.11	%
Net interest margin	$	16,954.3	$	501.9		3.95	%	$	16,467.0	$	522.7		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									Nine Months Ended
(dollars in millions)	September 30, 2014			June 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Net interest income (te) (a)	$	166.2		$	167.3		$	174.1		$	501.9		$	522.7
Purchase accounting accretion
Loan accretion		22.8			28.0			38.3			80.6			114.4
Whitney premium bond amortization		(1.3	)		(1.4	)		(2.8	)		(4.2	)		(9.6	)
Whitney and Peoples First CD accretion		—			0.1			0.1			0.2			0.6

Total net purchase accounting accretion		21.5			26.7			35.6			76.6			105.4

Net interest income (te) - core	$	144.7		$	140.6		$	138.5		$	425.3		$	417.3

Average earning assets	$	17,324.4		$	16,791.7		$	16,384.6		$	16,954.3		$	16,467.0
Net interest margin - reported		3.81	%		3.99	%		4.23	%		3.95	%		4.24	%
Net purchase accounting accretion (%)		0.49	%		0.64	%		0.86	%		0.60	%		0.86	%

Net interest margin - core		3.32	%		3.35	%		3.37	%		3.35	%		3.38	%

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

Provision for Loan Losses

During the third quarter of 2014, Hancock recorded a total provision for loan losses of $9.5 million, up $2.8 million from the second quarter of 2014. The provision for noncovered loans was $9.9 million in the third quarter of 2014, compared to $6.8 million in the second quarter of 2014 and $6.5 million in the third quarter of 2013. The provision for the covered portfolio was a small net credit in each of the three-month periods ended September 30, 2014 and June 30, 2014 and $1.0 million expense for the quarter ended September 30, 2013. For the first nine months of 2014, the total provision for loans losses was $24.1 million, down slightly from $25.4 million for the same period in 2013.

The section below on “Allowance for Loan Losses and Asset Quality” provides additional information on changes in the allowance for loan losses and general credit quality. Certain differences in the determination of the allowance for loan losses for originated loans and for acquired-performing loans and acquired-impaired loans (which includes all 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 $57.9 million for the third quarter of 2014, up $1.5 million, or 3%, compared to the second quarter of 2014, but down $5.1 million, or 8% from the third 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, third quarter 2014 noninterest income increased approximately $1.0 million from second quarter 2014, but was down $1.1 million from the third quarter of 2013. Noninterest income totaled $171.0 million for the first nine months of 2014, down $16.1 million, or 9%, from the first nine months of 2013. Excluding the impact of the lost revenues describe above, total noninterest income declined $3.1 million, or 2%.

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


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September, 30
(In thousands)	2014			2014			2013			2014			2013
Service charges on deposit accounts	$	20,000		$	19,269		$	20,519		$	57,981		$	59,398
Trust fees		11,530			11,499			9,477			33,267			27,972
Bank card and ATM fees		11,641			11,596			12,221			33,806			34,678
Investment and annuity fees		5,506			5,097			5,186			15,555			14,955
Secondary mortgage market operations		2,313			1,758			2,467			6,036			10,989
Insurance commissions and fees		1,979			1,888			3,661			7,611			12,500
Amortization of FDIC loss share receivable		(2,760	)		(3,321	)		(590	)		(9,989	)		(590	)
Income from bank owned life insurance		2,377			2,357			2,656			7,048			8,764
Credit related fees		2,822			2,834			2,995			8,388			5,969
Income from derivatives		191			481			1,257			1,431			3,296
(Loss) gain on sale of assets		(56	)		(217	)		801			1,409			1,277
Safety deposit box income		448			443			467			1,404			1,480
Other miscellaneous		1,950			2,714			1,940			7,091			6,453

Total noninterest income	$	57,941		$	56,398		$	63,057		$	171,038		$	187,141

Service charges on deposits totaled $20.0 million for the third quarter of 2014, up $0.7 million, or 4%, from the second quarter of 2014, but down $0.5 million, or 3%, from the third quarter of 2013. The increase from the second quarter of 2014 to the third quarter of 2014 reflects a $0.4 million increase in service charges from both business and consumer accounts, partially as a result of a number of initiatives implemented during 2014 to enhance growth in deposit balances and fee income.

Trust fees totaled $11.5 million for the quarter ended September 30, 2014. Excluding $0.5 million in seasonal tax preparation fees in the second quarter of 2014, linked-quarter trust fees increased $0.5 million, or 5%, with approximately half of the increase related to an increase in investment management and advisory service revenue. Trust fees increased $2.1 million, or 22%, compared to the third quarter of 2013 with growth in virtually all products and services. Investment management and advisory service revenue accounted for $1.6 million of the increase. For the first nine months of 2014 compared to 2013, trust fees increased $5.3 million, or 19%, with growth in all products and services, but primarily due to a $4.7 million, or 41% increase in investment management and advisory service revenue resulting from growth in the value of assets managed. Managed assets were $6.4 billion as of September 30, 2014, slightly down from $6.6 billion at June 30, 2014, but up 12% from $5.7 billion as of September 30, 2013.

Bank card fees and ATM fees totaled $11.6 million in the third quarter of 2014 virtually unchanged from the second quarter of 2014, but down $0.6 million, or 5%, compared to the third quarter of 2013. Included in bank card and ATM fees are fees from credit card, debit card and ATM transactions, and merchant service fees. For the third quarter of 2014, a $0.4 million, or 12% linked-quarter increase in credit card-related interchange fee income offset a slight decrease in debit card and ATM interchange fees as well as a decrease in merchant service fees. The increase in credit card fees resulted from various strategic initiatives during 2014 to increase card usage, including specific commercial card enhancements. The decrease in ATM fee income was due in part to the closing of 16 branches in July 2014 as part of the Company’s branch rationalization program. For the nine months ended 2014, bank card and ATM fees decreased $0.9 million, or 3%, compared to the same period in 2013.

Insurance fees remained relatively flat for the third quarter of 2014 compared to the second quarter of 2014. Insurance fees decreased $1.7 million, or 46%, from third quarter of 2013 and decreased $4.9 million, or 39%, for the first nine months of 2014 compared to the first nine months of 2013. These decreases resulted from the Company selling its property and casualty and group benefits insurance intermediary business in April 2014.

Fees from the secondary mortgage operations in the third quarter of 2014 were up $0.6 million, or 32%, compared to the second quarter of 2014 and down $0.2 million, or 6%, compared to the third quarter of 2013. Secondary mortgage operations fee income is generated from selling certain types of originated single family mortgage loans into the secondary market in an effort to manage interest rate risk and liquidity. The Company typically sells its longer-term fixed-rate loans while retaining in the portfolio the majority of its adjustable rate loans as well as loans generated through certain programs to support customer relationships including programs for high net worth individuals and non-builder construction loans. The increase in fee income during the third quarter of 2014 compared to the second quarter of 2014 was due to a slightly higher percentage of mortgage loans originated during the quarter being sold in the secondary market. Through the first nine months of 2014, fees from the secondary mortgage operations decreased $5.0 million, or 45%, compared to the first nine months of 2013. The decline reflects reduced loan sales in the secondary market due to a 30% reduction in loan originations, primarily from refinancing activities, for the nine months ended September 30, 2014 as compared to the same period in 2013.

Amortization of the FDIC loss share receivable totaled $2.8 million in the third quarter of 2014 compared to $3.3 million in the second quarter of 2014. For the first nine months of 2014, amortization of the FDIC loss share receivable totaled $10.0 million compared to less than $1 million for the first nine 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.

Noninterest Expense

Noninterest expense for the third quarter of 2014 was $149.1 million, down $7.8 million, or 5%, compared to the second quarter of 2014, and down $33.1 million, or 18%, from the third quarter of 2013. Noninterest expense for the nine months ended September 30, 2014 was $452.9 million, down $51.1 million, or 10%, from the same period of 2013. Excluding nonoperating expense items, operating expense for the third quarter of 2014 totaled $145.2 million, which was up $0.5 million from the second quarter of 2014 and down $16.1 million, or 10%, from the same period in 2013. Operating expense for the first nine months of 2014 totaled $436.9 million, down $46.3 million, or 10%, compared to the first nine months of 2013. The decreases are primarily related to cost savings realized from the divestiture of certain insurance business lines and the Company’s expense and efficiency initiatives that has included either selling or closing approximately 60 branches and reducing headcount by almost 450 full-time-equivalent employees since January 1, 2013.

Total personnel expense (excluding $1.1 million in nonoperating expense) totaled $80.0 million for the third quarter of 2014, up slightly compared to the second quarter of 2014 and down $6.8 million, or 8%, from the third quarter of 2013. Total personnel expense (excluding $2.7 million in nonoperating expense) for the first nine months of 2014 decreased $21.4 million, or 8%, compared to the first nine months of 2013. The Company has reduced its work force by over 11% during the past 21 months. In addition, the Company’s benefit costs declined by over 20% for both the quarter and nine months compared to 2013 primarily due to reduced pension costs resulting from a better overall performance of our pension plan assets.

Occupancy and equipment expenses totaled $15.3 million for the third quarter of 2014, up $0.4 million, or 3%, from the second quarter of 2014 and down $2.1 million, or 12%, from the third quarter of 2013. Occupancy and equipment expenses totaled $45.8 million for the first nine months of 2014, down $6.7 million, or 13%, from the first nine months of 2013. The reduction in occupancy and equipment expenses reflects the impact of the closures or sales mentioned above and other expense and efficiency initiatives.

All other expenses, excluding amortization of intangibles and $2.6 million of nonoperating expense items, totaled $43.2 million for the third quarter of 2014, down slightly from the second quarter of 2014 and down $6.4 million, or 13%, from third quarter of 2013. For the first nine months of 2014, all other expenses decreased $16.3 million, or 11%, primarily due to decreases in professional services, deposit insurance, telecommunications and postage and other real estate (ORE) expense. Net gains on ORE dispositions exceeded ORE expense in the third quarter of 2014 by $0.1 million compared to $0.1 million expense in the second quarter of 2014 and $2.4 million in the third quarter of 2013. For the first nine months of 2014, ORE expense totaled $1.8 million compared to $6.5 million in 2013.

Tax credit investment amortization totaling $2.2 million in each of the first three quarters of 2014 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.

All of the current quarter nonoperating expense relates to the Company’s expense and efficiency initiative. Included in this total for the first nine months of 2014 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, $11.4 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								Nine Months Ended
	September 30,			June 30,			September 30,		September 30,
(In thousands)	2014			2014			2013		2014			2013
Operating expense
Compensation expense	$	68,151		$	66,948		$	70,614	$	202,264		$	213,292
Employee benefits		11,892			12,558			16,236		38,717			49,080

Personnel expense		80,043			79,506			86,850		240,981			262,372

Net occupancy expense		10,799			10,840			12,369		32,905			37,099
Equipment expense		4,542			4,059			5,120		12,875			15,340
Data processing expense		12,984			12,828			12,031		38,231			36,346
Professional services expense		5,879			6,421			8,715		18,709			25,387
Amortization of intangibles		6,570			6,744			7,306		20,352			22,292
Telecommunications and postage		3,640			3,835			4,397		11,058			13,484
Deposit insurance and regulatory fees		2,967			2,743			3,789		8,677			11,635
Other real estate owned expense, net		(104	)		84			2,439		1,757			6,502
Advertising		2,412			2,006			2,825		6,177			7,183
Ad valorem and franchise taxes		3,098			2,638			2,809		8,397			7,193
Printing and supplies		1,123			792			1,143		3,244			3,963
Insurance expense		944			1,018			887		3,002			3,018
Travel		1,006			1,059			1,065		2,961			3,466
Entertainment and contributions		1,396			1,529			969		4,337			3,960
Tax credit investment amortization		2,220			2,198			1,318		6,590			3,991
Other expense		5,673			6,427			7,286		16,648			19,939

Total operating expense	$	145,192		$	144,727		$	161,318	$	436,901		$	483,170

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		3,887			7,503			20,887		11,390			20,887
Early debt redemption		—			3,461			—		3,461			—

Total nonoperating expense items	$	3,887		$	12,131		$	20,887	$	16,018		$	20,887

Total noninterest expense	$	149,079		$	156,858		$	182,205	$	452,919		$	504,057

Income Taxes

The effective income tax rate for the third quarter of 2014 was approximately 26% compared to 31% in the second quarter of 2014 and 26% in the third 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.

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 on tax credit investments that have been made, the Company expects to realize tax credits over the next three years of $12.9 million, $10.1 million and $9.0 million for 2015, 2016 and 2017, respectively.

The following table reconciles reported income tax expense to that computed at the statutory federal tax rate for both the year-to-date and quarter-ended September 30, 2014 and 2013.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(In thousands)	2014			2014			2013			2014			2013
Taxes computed at statutory rate	$	22,027		$	20,170		$	15,685		$	65,757		$	60,341
Tax credits:
QZAB/QSCB		(841	)		(769	)		(794	)		(2,378	)		(2,382	)
NMTC - Federal and State		(3,173	)		(3,173	)		(2,152	)		(9,780	)		(6,456	)
LIHTC		(113	)		(113	)		(231	)		(339	)		(693	)

Total tax credits		(4,127	)		(4,055	)		(3,177	)		(12,497	)		(9,531	)
State income taxes, net of federal income tax benefit		706			1,043			482			3,423			2,041
Tax-exempt interest		(1,577	)		(1,530	)		(1,648	)		(4,691	)		(4,951	)
Bank owned life insurance		(790	)		(825	)		(900	)		(2,425	)		(3,066	)
Goodwill - writeoff		—			1,112			—			1,112			—
Other, net		143			1,750			1,169			1,569			(1,070	)

Income tax expense	$	16,382		$	17,665		$	11,611		$	52,248		$	43,764

Selected Financial Data

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


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2014		2014		2013		2014		2013
Common Share Data
Earnings per share:
Basic	$	0.56	$	0.48	$	0.40	$	1.62	$	1.51
Diluted	$	0.56	$	0.48	$	0.40	$	1.62	$	1.51
Operating earnings per share: (a)
Basic	$	0.59	$	0.59	$	0.56	$	1.77	$	1.67
Diluted	$	0.59	$	0.59	$	0.56	$	1.76	$	1.67
Cash dividends per share	$	0.24	$	0.24	$	0.24	$	0.72	$	0.72
Book value per share (period-end)	$	30.76	$	30.45	$	28.70	$	30.76	$	28.71
Tangible book value per share (period-end)	$	21.44	$	21.08	$	19.04	$	21.44	$	19.04
Weighted average number of shares (000s):
Basic		81,721		81,933		82,091		81,965		83,404
Diluted		81,942		82,174		82,205		82,204		83,496
Period-end number of shares (000s)		81,567		81,860		82,107		81,567		82,107
Market data:
High price	$	36.47	$	37.86	$	33.85	$	38.50	$	33.85
Low price	$	31.25	$	32.02	$	29.00	$	31.25	$	25.00
Period-end closing price	$	32.05	$	35.32	$	31.38	$	32.05	$	31.38
Trading volume (000s) (b)		25,553		27,432		29,711		84,239		97,779

(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						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
(in thousands)	2014		2014		2013		2014		2013
Income Statement:
Interest income	$	172,701	$	174,001	$	181,639	$	521,842	$	546,560
Interest income (te) (a)		175,390		176,555		184,221		529,720		554,511
Interest expense		9,160		9,223		10,109		27,961		31,836

Net interest income (te)		166,230		167,332		174,112		501,759		522,675
Provision for loan losses		9,468		6,691		7,569		24,122		25,404
Noninterest income excluding securities transactions		57,941		56,398		63,057		171,038		187,141
Securities transactions gains		—		—		—		—		—
Noninterest expense		149,079		156,858		182,205		452,919		504,057

Income before income taxes		62,935		57,627		44,813		187,878		172,404
Income tax expense		16,382		17,665		11,611		52,248		43,764

Net income	$	46,553	$	39,962	$	33,202	$	135,630	$	128,640

Total nonoperating expense items		3,887		12,131		20,887		16,018		20,887
Taxes on adjustments at marginal tax rate		1,361		2,518		7,310		3,879		7,310

Operating income (b)	$	49,079	$	49,575	$	46,779	$	147,769	$	142,217

Purchase accounting adjustments, net of tax		7,903		10,839		18,101		30,115		53,964

Core income (c)	$	41,176	$	38,736	$	28,678	$	117,654	$	88,253

(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.

(c)	Operating income excluding tax-effected purchase accounting adjustments. Management believes that reporting on core income provides a useful measure of financial performance that helps investors determine whether management is successfully executing its strategic initiatives.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2014			2014			2013			2014			2013
Performance Ratios
Return on average assets		0.94	%		0.84	%		0.70	%		0.94	%		0.91	%
Return on average assets (operating) (a)		1.00	%		1.04	%		0.99	%		1.03	%		1.00	%
Return on average common equity		7.42	%		6.51	%		5.63	%		7.36	%		7.18	%
Return on average common equity (operating) (a)		7.82	%		8.07	%		7.93	%		8.02	%		7.93	%
Tangible common equity ratio		9.10	%		9.29	%		8.68	%		9.10	%		8.68	%
Earning asset yield (te)		4.02	%		4.21	%		4.47	%		4.17	%		4.50	%
Total cost of funds		0.21	%		0.22	%		0.24	%		0.22	%		0.26	%
Net interest margin (te)		3.81	%		3.99	%		4.23	%		3.95	%		4.24	%
Efficiency ratio (b)		61.84	%		61.67	%		64.95	%		61.91	%		64.93	%
Allowance for loan losses to period-end loans		0.94	%		1.00	%		1.18	%		0.94	%		1.18	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due		128.44	%		126.26	%		94.69	%		128.44	%		94.69	%
Average loan/deposit ratio		85.24	%		84.20	%		78.70	%		83.52	%		76.80	%
Noninterest income excluding securities transactions to total revenue (te)		25.85	%		25.21	%		26.59	%		25.42	%		26.36	%

(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									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2014			2014			2013			2014			2013
Asset Quality Information
Nonaccrual loans (a)	$	83,154		$	89,901		$	119,749		$	83,154		$	119,749
Restructured loans - still accruing		7,944			7,868			10,605			7,944			10,605

Total nonperforming loans		91,098			97,769			130,354			91,098			130,354
Other real estate (ORE) and foreclosed assets		56,081			59,732			85,560			56,081			85,560

Total nonperforming assets	$	147,179		$	157,501		$	215,914		$	147,179		$	215,914

Nonperforming assets to loans, ORE and foreclosed assets		1.10	%		1.22	%		1.83	%		1.10	%		1.83	%
Accruing loans 90 days past due (a)	$	6,667		$	4,142		$	15,620		$	6,667		$	15,620
Accruing loans 90 days past due to loans		0.05	%		0.03	%		0.13	%		0.05	%		0.13	%
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets		1.15	%		1.25	%		1.96	%		1.15	%		1.96	%
Net charge-offs - noncovered	$	6,439		$	4,064		$	5,430		$	14,481		$	19,095
Net charge-offs - covered		(566	)		1,181			506			3,125			5,754
Net charge-offs - noncovered to average loans		0.19	%		0.13	%		0.18	%		0.15	%		0.22	%
Allowance for loan losses	$	125,572		$	128,672		$	138,223		$	125,572		$	138,223
Allowance for loan losses to period-end loans		0.94	%		1.00	%		1.18	%		0.94	%		1.18	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due		128.44	%		126.26	%		94.69	%		128.44	%		94.69	%
Provision for loan losses	$	9,468		$	6,691		$	7,569		$	24,122		$	25,404

(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 $10 million, $12 million, and $19 million in restructured loans at 9/30/14, 6/30/14, and 9/30/13, respectively.


Supplemental Asset Quality Information	Originated		Acquired (a)			Covered (a) (b)			Total
(in thousands)	September 30, 2014
Nonaccrual loans	$	68,362	$	11,572		$	3,220		$	83,154
Restructured loans - still accruing		7,944		—			—			7,944
Total nonperforming loans		76,306		11,572			3,220			91,098
ORE and foreclosed assets (c)		38,096		—			17,985			56,081
Total nonperforming assets		114,402		11,572			21,205			147,179
Accruing loans 90 days past due		5,149		1,518			—			6,667
Allowance for loan losses		81,822		9,117			34,633			125,572

	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		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

Loans Outstanding	Originated		Acquired (a)			Covered (a) (b)			Total
(in thousands)	September 30, 2014
Commercial non-real estate loans	$	4,806,740	$	769,226		$	11,171		$	5,587,137
Construction and land development loans		974,442		110,294			11,166			1,095,902
Commercial real estate loans		2,245,855		813,429			41,550			3,100,834
Residential mortgage loans		1,635,462		37,739			185,289			1,858,490
Consumer loans		1,623,069		51,488			31,654			1,706,211
Total loans		11,285,568		1,782,176			280,830			13,348,574
Change in loan balance from previous quarter		627,116		(139,603	)		(22,995	)		464,518

	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

(a)	Acquired and covered loans are subject to purchase accounting guidance as described in note 3 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.


	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands)	2014			2014			2014			2013			2013
Period-End Balance Sheet
Total loans, net of unearned income (a)	$	13,348,574		$	12,884,056		$	12,527,937		$	12,324,817		$	11,734,472
Loans held for sale		15,098			22,017			15,911			24,515			18,444
Securities		3,913,370			3,677,229			3,797,883			4,033,124			4,124,202
Short-term investments		471,558			440,688			280,373			268,839			462,313

Earning assets		17,748,600			17,023,990			16,622,104			16,651,295			16,339,431
Allowance for loan losses		(125,572	)		(128,672	)		(128,248	)		(133,626	)		(138,223	)
Goodwill		621,193			621,193			625,675			625,675			625,675
Other intangible assets, net		139,256			145,825			152,734			159,773			167,116
Other assets		1,602,473			1,687,095			1,731,905			1,706,134			1,807,847

Total assets	$	19,985,950		$	19,349,431		$	19,004,170		$	19,009,251		$	18,801,846

Noninterest-bearing deposits	$	5,866,255		$	5,723,663		$	5,613,872		$	5,530,253		$	5,479,696
Interest-bearing transaction and savings deposits		6,325,671			6,079,837			6,118,150			6,162,959			6,008,042
Interest-bearing public funds deposits		1,534,678			1,484,188			1,451,430			1,571,532			1,240,336
Time deposits		2,010,090			1,957,539			2,091,322			2,095,772			2,326,797

Total interest-bearing deposits		9,870,439			9,521,564			9,660,902			9,830,263			9,575,175

Total deposits		15,736,694			15,245,227			15,274,774			15,360,516			15,054,871
Short-term borrowings		1,171,809			1,063,664			712,634			657,960			782,779
Long-term debt		376,452			374,991			380,001			385,826			376,664
Other liabilities		191,653			172,967			174,227			179,880			231,090
Stockholders’ equity		2,509,342			2,492,582			2,462,534			2,425,069			2,356,442

Total liabilities & stockholders’ equity	$	19,985,950		$	19,349,431		$	19,004,170		$	19,009,251		$	18,801,846


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(in thousands)	2014			2014			2013			2014			2013
Average Balance Sheet
Total loans, net of unearned income (a)	$	13,102,108		$	12,680,861		$	11,805,330		$	12,723,409		$	11,632,166
Loans held for sale		16,885			14,681			16,065			16,916			27,079
Securities (b)		3,780,089			3,716,563			4,135,348			3,810,186			4,163,436
Short-term investments		425,362			379,639			427,892			403,809			644,349

Earning assets		17,324,444			16,791,744			16,384,635			16,954,320			16,467,030
Allowance for loan losses		(129,734	)		(126,887	)		(137,936	)		(130,412	)		(137,624	)
Goodwill and other intangible assets		763,652			770,294			796,300			771,728			803,676
Other assets		1,591,585			1,604,113			1,753,028			1,620,949			1,856,115

Total assets	$	19,549,947		$	19,039,264		$	18,796,027		$	19,216,585		$	18,989,197

Noninterest-bearing deposits	$	5,707,523		$	5,505,735		$	5,415,303		$	5,571,843		$	5,359,325
Interest-bearing transaction and savings deposits		6,160,911			6,078,115			5,919,709			6,104,039			5,955,711
Interest-bearing public fund deposits		1,547,513			1,450,312			1,302,425			1,508,222			1,463,750
Time deposits		1,955,262			2,026,419			2,384,248			2,049,914			2,402,061

Total interest-bearing deposits		9,663,686			9,554,846			9,606,382			9,662,175			9,821,522

Total deposits		15,371,209			15,060,581			15,021,685			15,234,018			15,180,847
Short-term borrowings		1,139,694			957,386			820,500			962,014			791,641
Long-term debt		375,914			380,151			385,203			380,660			391,712
Other liabilities		173,182			177,761			229,694			176,591			228,056
Stockholders’ equity		2,489,948			2,463,385			2,338,945			2,463,302			2,396,941

Total liabilities & stockholders’ equity	$	19,549,947		$	19,039,264		$	18,796,027		$	19,216,585		$	18,989,197

(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 23% at September 30, 2014, compared to 20% at June 30, 2014 and 22% at December 31, 2013. Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window.

Liquidity Metrics


	September 30,			June 30,			March 31,			December 31,			September 30,
	2014			2014			2014			2013			2013
Free securities / total securities		23.00	%		20.00	%		21.00	%		22.00	%		37.00	%
Noncore deposits / total deposits		5.43	%		5.64	%		5.87	%		5.43	%		6.60	%
Wholesale funds / core deposits		10.40	%		10.00	%		7.60	%		7.19	%		8.26	%

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 $250,000 or more, brokered CDs, and balances in sweep time deposit products used by commercial customers. The ratio of noncore deposits to total deposits was 5.43% at September 30, 2014, down 21 bps from June 30, 2014 and unchanged from December 31, 2013. There were no brokered CDs outstanding as of September 30, 2014 or June 30, 2014 and $60.2 million outstanding at December 31, 2013.

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. Besides funding from customer sources, our short-term borrowing capacity includes an approved line of credit with the FHLB of $3.3 billion and borrowing capacity at the Federal Reserve’s discount window in excess of $1.8 billion at September 30, 2014. Wholesale funds, which are comprised of short-term borrowings and long-term debt, were 10.40% of core deposits at September 30, 2014, up from 10.00% at June 30, 2014 and 7.19% at December 31, 2013. The increases from December 31, 2013 reflect utilization of the FHLB line to help fund asset growth. At September 30, 2014, the Company had borrowings from the FHLB totaling $565 million compared to $415 million at June 30, 2014. There were no borrowings from the FHLB at the end of any prior periods. Loan growth of $1 billion since year-end has outpaced a $376 million increase in deposits. No amounts had been borrowed at the Federal Reserve’s discount window in any period. See the discussion on “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 nine months ended September 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, stock buybacks, 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. The Company maintains 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 September 30, 2014, up $84 million from December 31, 2013. The tangible common equity ratio increased to 9.10% at September 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. During the third quarter of 2014, the Company repurchased 305,263 shares at an average price of $32.65 per share under the buyback program. See Item 2 in Part II of this document for additional discussion of the Company’s common stock buyback program.

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 September 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 September 30, 2014, risk-based ratios decreased compared to both June 30, 2014 and December 31, 2013, primarily as a result of asset growth.

The following table shows the regulatory capital ratios for the Company and the Bank for the indicated periods.


	September 30,			June 30,			March 31,			December 31,
	2014			2014			2014			2013
Regulatory ratios:
Total capital (to risk weighted assets)
Hancock Holding Company		12.66	%		12.96	%		13.20	%		13.11	%
Whitney Bank		12.40	%		12.72	%		13.02	%		12.98	%*
Tier 1 capital (to risk weighted assets)
Hancock Holding Company		11.59	%		11.83	%		11.90	%		11.76	%
Whitney Bank		11.32	%		11.58	%		11.72	%		11.64	%*
Tier 1 leverage capital
Hancock Holding Company		9.48	%		9.61	%		9.43	%		9.34	%
Whitney Bank		9.31	%		9.44	%		9.32	%		9.29	%*
* Restated to give effect to merger of Hancock Bank and Whitney Bank

Regulatory definitions:

(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.

(2)

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.

(3)

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.

(4)

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 $3.9 billion at September 30, 2014, up $236 million from June 30, 2014 and down $120 million from December 2013. The quarterly increase in securities was necessary to support anticipated public fund collateralization and was funded with FHLB advances. The decrease in securities compared to year-end reflects the Company’s use of funds from repayments and maturities in the securities portfolio to support loan growth. At September 30, 2014, securities available for sale totaled $1.6 billion and securities held to maturity totaled $2.3 billion.

The securities portfolio consists mainly of residential mortgage-backed securities and collateralized mortgage obligations issued or guaranteed by U.S. government agencies. The portfolio is designed to enhance liquidity while providing an acceptable rate of return. The Company invests only in high quality securities of investment grade quality with a targeted duration for the overall portfolio of between two and five. At September 30, 2014, the average maturity of the portfolio was 4.45 years with an effective duration of 3.89 and a weighted-average yield of 2.36%. The effective duration increases, under management scenarios, to 4.32 with a 100 basis point increase in the yield curve and to 4.43 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 September 30, 2014 were $13.3 billion, up $465 million, or 4%, compared to June 30, 2014 and up $1.0 billion, or 8%, from December 31, 2013. Excluding the FDIC-covered portfolio, total loans increased $488 million, or 4%, from June 30, 2014 and $1.1 billion from year-end 2013. The noncovered loan portfolio was up $1.7 billion, or 15%, from September 30, 2013.

See Note 3 to the consolidated financial statements for the composition of originated, acquired and covered loans at September 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.

All markets across the franchise reported net loan growth during the quarter, with south Louisiana, Houston and central Florida generating over half of the increase. Lending areas such as mortgage and indirect generated approximately 30% of the quarter’s net loan growth. For the quarter ended September 30, 2014, indirect loans grew $56 million, or 15%, to $427 million, while mortgage loans increased $87 million, or 5%, to $1.9 billion.

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 $1.7 billion at September 30, 2014, up approximately $113 million from June 30, 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 September 30, 2014 totaled approximately $1.7 billion, up approximately $97 million from the last quarter and $297 million from December 31, 2013. Approximately $1.0 billion of shared national credits were with O&G customers at September 30, 2014, up $81 million from June 30, 2014, and up $244 million from year-end.

Commercial non-real estate loans, construction and land development loans (C&D) loans, and commercial real estate (CRE) loans in the originated and acquired portfolios increased a net $794 million over the first nine 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 $92 million during the third quarter and $162 million over the first nine months of 2014. Consumer loans increased by a net $89 million and $146 million over these periods.

Total covered loans at September 30, 2014 were down $23 million from June 30, 2014 and $78 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 $126 million at September 30, 2014, compared to $129 million at June 30, 2014. The decrease is a result of a $6.5 million reduction in the allowance on the covered portfolio as estimated losses in the covered portfolio have decreased from June 30, 2014.

The ratio of the allowance to period-end loans was 0.94% at September 30, 2014, down slightly from 1.00% at June 30, 2014. The allowance maintained on the originated portion of the loan portfolio totaled $82 million, or 0.73%, of related loans, at September 30, 2014, as compared to $79 million, or 0.74%, at June 30, 2014.

During the third quarter of 2014, Hancock recorded a total provision for loan losses of $9 million, up from $7 million in the second quarter of 2014. The total provision for loan losses for the first nine months of 2014 was $24 million, compared to $25 million provision for the same period in 2013.

Net charge-offs from the noncovered loan portfolio were $6 million, or 0.19% of average total loans on an annualized basis in the third quarter of 2014, compared to $4 million, or 0.13%, in the second quarter of 2014. Commercial net charge-offs increased $1.3 million. Charge-offs were up primarily due to a $1.5 million charge-off related to a single customer and a decline of $0.7 million in recoveries of previously charged-off loans. Consumer net charge-offs were up $1.1 million as charge-offs rose by $0.7 million and recoveries declined by $0.4 million.

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


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2014			2014			2013			2014			2013
Allowance for loan losses at beginning of period	$	128,672		$	128,248		$	137,969		$	133,626		$	136,171

Loans charged-off:
Noncovered loans:
Commercial non real estate		1,032			1,272			999			4,690			5,199
Construction and land development		1,574			950			1,183			2,615			7,548
Commercial real estate		882			650			847			2,255			3,718
Residential mortgages		696			856			647			1,793			1,549
Consumer		4,298			3,581			5,022			11,920			13,372

Total noncovered charge-offs		8,482			7,309			8,698			23,273			31,386

Covered loans:
Commercial non real estate		106			24			—			176			681
Construction and land development		(274	)		166			(537	)		350			1,784
Commercial real estate		458			905			2,195			4,480			4,316
Residential mortgages		(53	)		422			431			677			947
Consumer		62			1,049			54			1,192			1,145

Total covered charge-offs		299			2,566			2,143			6,875			8,873

Total charge-offs		8,781			9,875			10,841			30,148			40,259

Recoveries of loans previously charged-off:
Noncovered loans:
Commercial non real estate		707			585			1,043			2,118			3,381
Construction and land development		156			413			206			1,220			1,243
Commercial real estate		174			726			828			1,231			2,340
Residential mortgages		138			269			96			501			991
Consumer		868			1,252			1,095			3,722			4,336

Total noncovered recoveries		2,043			3,245			3,268			8,792			12,291

Covered loans:
Commercial non real estate		16			6			—			467			90
Construction and land development		608			39			70			1,504			554
Commercial real estate		37			1,235			1,517			1,408			2,395
Residential mortgages		(18	)		13			11			1			13
Consumer		222			92			39			370			67

Total covered recoveries		865			1,385			1,637			3,750			3,119

Total recoveries		2,908			4,630			4,905			12,542			15,410

Net charge-offs - noncovered		6,439			4,064			5,430			14,481			19,095
Net charge-offs - covered		(566	)		1,181			506			3,125			5,754

Total net charge-offs		5,873			5,245			5,936			17,606			24,849

Provision for loan losses before FDIC benefit - covered loans		(7,086	)		(1,095	)		(355	)		(15,336	)		9,484
Benefit attributable to FDIC loss share agreement		6,695			1,022			1,379			14,570			(1,497	)
Provision for loan losses noncovered loans		9,859			6,764			6,545			24,888			17,417

Provision for loan losses, net		9,468			6,691			7,569			24,122			25,404
(Decrease) Increase in FDIC loss share receivable		(6,695	)		(1,022	)		(1,379	)		(14,570	)		1,497

Allowance for loan losses at end of period	$	125,572		$	128,672		$	138,223		$	125,572		$	138,223

Ratios:
Gross charge-offs - noncovered to average loans		0.26	%		0.23	%		0.29	%		0.24	%		0.36	%
Recoveries - noncovered to average loans		0.06	%		0.10	%		0.11	%		0.09	%		0.14	%
Net charge-offs - noncovered to average loans		0.19	%		0.13	%		0.18	%		0.15	%		0.22	%
Allowance for loan losses to period-end loans		0.94	%		1.00	%		1.18	%		0.94	%		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 ORE and other foreclosed assets. Loans past due 90 days or more and still accruing are also disclosed.


	September 30,			December 31,
(In thousands)	2014			2013
Loans accounted for on a nonaccrual basis: (a)
Commercial non-real estate loans	$	9,021		$	8,705
Commercial non-real estate loans - restructured		2,115			4,654

Total commercial non-real estate loans		11,136			13,359

Construction and land development loans		7,779			8,770
Construction and land development loans - restructured		3,118			7,930

Total construction and land development loans		10,897			16,700

Commercial real estate loans		27,914			37,369
Commercial real estate loans - restructured		3,835			3,091

Total commercial real estate loans		31,749			40,460

Residential mortgage loans		22,230			22,255
Residential mortgage loans - restructured		843			—

Total residential mortgage loans		23,073			22,255

Consumer loans		6,299			6,912

Total nonaccrual loans		83,154			99,686

Restructured loans - still accruing:
Commercial non-real estate loans		2,269			2,323
Construction and land development loans		2,284			3,298
Commercial real estate loans		3,391			3,144
Residential mortgage loans		—			507
Consumer loans		—			—

Total restructured loans - still accruing		7,944			9,272

Total restructured loans		17,855			24,947

ORE and foreclosed assets		56,081			76,979

Total nonperforming assets (b)	$	147,179		$	185,937

Loans 90 days past due still accruing	$	6,667		$	10,387

Ratios:
Nonperforming assets to loans plus ORE and foreclosed assets		1.10	%		1.50	%
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due		128.44	%		111.97	%
Loans 90 days past due still accruing to loans		0.05	%		0.08	%

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

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

Nonperforming assets totaled $147 million at September 30, 2014, down $10 million from June 30, 2014 and $39 million from December 31, 2013. Nonperforming assets as a percent of total loans, ORE, and other foreclosed assets was 1.10% at September 30, 2014, compared to 1.22% at June 30, 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 $31 million from June 30, 2014 and $203 million from December 31, 2013, to a total of $472 million at September 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 third quarter of 2014 were up $46 million, or 12%, compared to the second quarter of 2014.

Deposits

Total deposits were $15.7 billion at September 30, 2014, up $491 million, or 3%, from June 30, 2014 and up $376 million, or 2% from December 31, 2013. Average deposits for the third quarter of 2014 were $15.4 billion, up $311 million, or 2% from the second quarter of 2014.

Noninterest-bearing demand deposits (DDAs) increased by $143 million, or 2%, during the third quarter to $5.9 billion at September 30, 2014, and were up $336 million, or 6%, from December 31, 2013. DDAs comprised 37% of total period-end deposits at September 30, 2014, up slightly from September 30, 2013 and year-end 2013.

Interest-bearing public fund deposits totaled $1.5 billion at September 30, 2014, up $50 million, or 3%, from June 30, 2014 and down $37 million, or 2%, from December 31, 2013. The increase compared to the prior quarter was primarily due to balances attracted to the Bank as a result of the Company’s deposit growth initiative that commenced in the second quarter of 2014. These balances helped to lessen the decline in public funds compared to year end when public entities typically carry higher balances with subsequent reductions throughout the first nine months of the year.

Time deposits totaled $2.0 billion at September 30, 2014, up $53 million, or 3%, from June 30, 2014, but down $86 million, or 4%, from December 31, 2013. CDs increased $79 million, or 5%, from June 30, 2014, but declined $102 million, or 6%, from December 31, 2013. Balances in sweep deposit products decreased $27 million, or 7%, from the prior quarter, but still $16 million, or 4%, over the balances at December 31, 2013. These increases also reflect the deposit growth initiative mentioned above.

Short-Term Borrowings

At September 30, 2014, short-term borrowings totaled $1.2 billion, up $514 million, or 78%, from December 31, 2013. The Company borrowed $565 million on the $3.3 billion line of credit with the FHLB to fund loan growth and to replace the $115 million in fixed rate reverse repurchase obligations that were redeemed 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 September 30, 2014 according to expiration date.


			Expiration Date
			Less than		1-3		3-5		More than
(In thousands)	Total		1 year		years		years		5 years
Commitments to extend credit	$	5,610,806	$	2,738,896	$	1,106,101	$	1,237,266	$	528,543
Letters of credit		423,609		274,051		70,490		75,675		3,393

Total	$	6,034,415	$	3,012,947	$	1,176,591	$	1,312,941	$	531,936

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

Forward-looking statements that we may make include, but may not be limited to, comments with respect to future levels of economic activity in our markets, loan growth, deposit trends, credit quality trends, net interest margin trends, future expense levels, success of revenue-generating initiatives, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as accretion levels, 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 public filings with the Securities and Exchange Commission, which are available at the SEC’s internet site (http://www.sec.gov).

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Hancock measures its interest rate sensitivity primarily by running net interest income simulations. The model measures annual net interest income sensitivity relative to a base case scenario and incorporates assumptions regarding balance sheet growth and the mix of earning assets and funding sources as well as pricing, re-pricing and maturity characteristics of the existing and projected balance sheet. The table below presents the results of simulations run as of September 30, 2014 for year 1 and year 2, assuming the indicated instantaneous and sustained parallel shift in the yield curve at the measurement date. These results indicate that we are slightly asset sensitive as compared to the stable rate environment assumed for the base case.


		Net Interest Income (te) at Risk
		Estimated
Change in		increase (decrease)
interest rate		in net interest income
(basis points)		Year 1			Year 2
	+100		1.11	%		3.02	%
	+200		2.72	%		5.78	%
	+300		4.17	%		7.75	%

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 September 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 were no changes to the risk factors that were previously disclosed in our Form 10-K for the year ended December 31, 2013. In addition to the risk of vulnerability to certain sectors of the economy related to the real estate portfolio, recent trends in the energy sector point to possible vulnerability.

The oil and gas industry constitutes a significant component of the economy in several of our core markets. The oil and gas industry is particularly sensitive to certain industry specific economic factors, the most important of which is worldwide demand for oil and gas. When demand is soft, commodity prices decline and overall levels of activity in the sector, including capital expenditures, weaken. Moreover, given the importance of the energy industry to the economies of Louisiana and Texas, when the energy sector is weak, other business segments of the economy may be impaired. Although the Company mitigates risk by diversifying its borrower base, approximately 13% of the Company’s portfolio is comprised of loans to borrowers in the energy industry.

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 September 30, 2014.


					Total number
	Total				of shares		Maximum number
	number		Average		purchased as		of shares
	of shares		price		a part of publicly		that may yet be
	or units		paid		announced plans		purchased under
	purchased		per share		or programs (1)		plans or programs
Jul. 1, 2014 - Jul. 31, 2014		—	$	—		—		4,093,149
Aug 1, 2014 - Aug 31, 2014		305,263		32.65		305,263		3,787,886
Sep. 1, 2014 - Sep. 30, 2014		—		—		—		3,787,886

Total		305,263	$	32.65		305,263

(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		Addendum to Nonqualified Deferred Compensation Plan describing SERP benefit (filed as Exhibit 10.3 to Hancock’s Form 10-Q filed with the Commission on August 8, 2014 and incorporated herein by reference).

*10.4		Form of 2014 Restricted Stock Award Agreement (filed as Exhibit 10.4 to Hancock’s Form 10-Q filed with the Commission on August 8, 2014 and incorporated herein by reference).

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

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:		November 7, 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		Addendum to Nonqualified Deferred Compensation Plan describing SERP benefit (filed as Exhibit 10.3 to Hancock’s Form 10-Q filed with the Commission on August 8, 2014 and incorporated herein by reference).

*10.4		Form of 2014 Restricted Stock Award Agreement (filed as Exhibit 10.4 to Hancock’s Form 10-Q filed with the Commission on August 8, 2014 and incorporated herein by reference).

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

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