10-Q 1 hbhc-20160930x10q.htm 10-Q

Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________

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FORM 10-Q

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(Mark one)

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

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For the quarterly period ended September 30, 2016

OR

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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the transition period from to

Commission file number: 001-36827

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HANCOCK HOLDING COMPANY

(Exact name of registrant as specified in its charter)

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Mississippi | 64-0693170
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
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One Hancock Plaza, 2510 14 th Street, Gulfport, Mississippi | 39501
(Address of principal executive offices) | (Zip Code)

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(228) 868-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

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

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

Indicate by check mark whether the registrant has submitted electronically 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 ☐ 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):

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Large accelerated filer | ☒ | Accelerated filer | ☐
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Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐

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

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

77,574,054 common shares were outstanding as of November 1, 201 6.

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Table of Contents

Ha ncock Holding Company

Index

﻿ |  |
Part I. Financial Information | Page Number
ITEM 1. | Financial Statements |
﻿ | Consolidat ed Balance Sheets – September 30, 2016 (unaudited) and December 31, 201 5 | 1
﻿ | Consolidated Statements of Income (unaudited) - Three and nine months ended September 30, 2016 and 201 5 | 2
﻿ | Consolidated Statements of Comprehensive Income (unaudited) – Three and nine months ended September 30, 2 016 and 201 5 | 3
﻿ | Consolidated Statements of Changes in Stockhold ers’ Equity - (unaudited) – Nine months ended September 30, 2016 and 201 5 | 4
﻿ | Consolidated Statements of Cash Flows (unaudited) - Nine months ended September 30, 2016 and 201 5 | 5
﻿ | Notes to Consolidated Financial Statements (unaudited) – September 30, 201 6 | 6
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 33
ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 55
ITEM 4. | Controls and Procedures | 55
Part II. Other Information |
ITEM 1. | Legal Proceedings | 56
ITEM 1A. | Risk Factors | 56
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 56
ITEM 3. | Default on Senior Securities | N/A
ITEM 4. | Mine Safety Disclosures | N/A
ITEM 5. | Other Information | N/A
ITEM 6. | Exhibits | 57
﻿Signatures |

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Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets

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﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | September 30, |  | December 31,
(in thousands, except share data) |  | 2016 |  | 2015
ASSETS |  |  | unaudited |  |  |
Cash and due from banks |  | $ | 329,872 |  | $ | 303,874
Interest-bearing bank deposits |  |  | 128,028 |  |  | 564,671
Federal funds sold |  |  | 892 |  |  | 884
Securities available for sale, at fair value (amortized cost of $2,370,621 and $2,086,745) |  |  | 2,414,680 |  |  | 2,093,404
Securities held to maturity (fair value of $2,482,540 and $2,375,851) |  |  | 2,428,432 |  |  | 2,370,388
Loans held for sale |  |  | 42,545 |  |  | 20,434
Loans |  |  | 16,070,821 |  |  | 15,703,314
Less: allowance for loan losses |  |  | (236,061) |  |  | (181,179)
Loans, net |  |  | 15,834,760 |  |  | 15,522,135
Property and equipment, net of accumulated depreciation of $227,075 and $209,763 |  |  | 363,656 |  |  | 377,015
Prepaid expenses |  |  | 18,842 |  |  | 17,560
Other real estate, net |  |  | 19,097 |  |  | 26,256
Accrued interest receivable |  |  | 59,000 |  |  | 54,068
Goodwill |  |  | 621,193 |  |  | 621,193
Other intangible assets, net |  |  | 92,523 |  |  | 107,538
Life insurance contracts |  |  | 478,602 |  |  | 434,550
FDIC loss share receivable |  |  | 18,030 |  |  | 29,868
Deferred tax asset, net |  |  | 73,419 |  |  | 75,830
Other assets |  |  | 185,159 |  |  | 213,937
Total assets |  | $ | 23,108,730 |  | $ | 22,833,605
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |
Deposits: |  |  |  |  |  |
Noninterest-bearing |  | $ | 7,543,041 |  | $ | 7,276,127
Interest-bearing |  |  | 11,342,436 |  |  | 11,072,785
Total deposits |  |  | 18,885,477 |  |  | 18,348,912
Short-term borrowings |  |  | 1,075,956 |  |  | 1,423,644
Long-term debt |  |  | 463,710 |  |  | 490,145
Accrued interest payable |  |  | 9,919 |  |  | 6,609
Other liabilities |  |  | 184,541 |  |  | 151,152
Total liabilities |  |  | 20,619,603 |  |  | 20,420,462
Stockholders' equity |  |  |  |  |  |
Common Stock - $3.33 par value per share; 350,000,000 shares authorized, 77,570,515 and 77,496,429 outstanding |  |  | 258,310 |  |  | 258,063
Capital surplus |  |  | 1,697,147 |  |  | 1,684,101
Treasury shares at cost - 9,246,656 and 9,319,082 shares |  |  | (228,701) |  |  | (226,370)
Retained earnings |  |  | 818,060 |  |  | 777,944
Accumulated other comprehensive loss, net |  |  | (55,689) |  |  | (80,595)
Total stockholders' equity |  |  | 2,489,127 |  |  | 2,413,143
Total liabilities and stockholders' equity |  | $ | 23,108,730 |  | $ | 22,833,605

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See notes to unaudited consolidated financial statements.

1

Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)

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﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | September 30,
﻿ |  |  |  |  |  |  |  |  |  |  |  |
(in thousands, except per share data) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Interest income: |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 155,761 |  | $ | 146,398 |  | $ | 466,591 |  | $ | 435,270
Loans held for sale |  |  | 323 |  |  | 176 |  |  | 731 |  |  | 494
Securities-taxable |  |  | 21,782 |  |  | 23,631 |  |  | 68,788 |  |  | 66,095
Securities-tax exempt |  |  | 3,780 |  |  | 839 |  |  | 8,593 |  |  | 2,564
Short-term investments |  |  | 507 |  |  | 285 |  |  | 1,597 |  |  | 913
Total interest income |  |  | 182,153 |  |  | 171,329 |  |  | 546,300 |  |  | 505,336
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 12,590 |  |  | 8,933 |  |  | 36,926 |  |  | 23,680
Short-term borrowings |  |  | 1,040 |  |  | 273 |  |  | 2,942 |  |  | 631
Long-term debt |  |  | 5,010 |  |  | 5,293 |  |  | 15,114 |  |  | 14,246
Total interest expense |  |  | 18,640 |  |  | 14,499 |  |  | 54,982 |  |  | 38,557
Net interest income |  |  | 163,513 |  |  | 156,830 |  |  | 491,318 |  |  | 466,779
Provision for loan losses |  |  | 18,972 |  |  | 10,080 |  |  | 96,204 |  |  | 22,842
Net interest income after provision for loan losses |  |  | 144,541 |  |  | 146,750 |  |  | 395,114 |  |  | 443,937
Noninterest income: |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  |  | 18,716 |  |  | 18,619 |  |  | 55,493 |  |  | 53,842
Trust fees |  |  | 11,512 |  |  | 11,345 |  |  | 34,825 |  |  | 34,340
Bank card and ATM fees |  |  | 11,808 |  |  | 11,637 |  |  | 35,110 |  |  | 34,688
Investment and annuity fees |  |  | 4,289 |  |  | 6,149 |  |  | 14,265 |  |  | 16,037
Secondary mortgage market operations |  |  | 4,917 |  |  | 3,413 |  |  | 12,005 |  |  | 9,695
Insurance commissions and fees |  |  | 1,088 |  |  | 2,238 |  |  | 3,635 |  |  | 6,587
Amortization of FDIC loss share receivable |  |  | (1,539) |  |  | (1,564) |  |  | (4,678) |  |  | (4,034)
Other income |  |  | 11,866 |  |  | 8,370 |  |  | 32,768 |  |  | 26,139
Securities transactions |  |  | 351 |  |  | 4 |  |  | 1,465 |  |  | 337
Total noninterest income |  |  | 63,008 |  |  | 60,211 |  |  | 184,888 |  |  | 177,631
Noninterest expense: |  |  |  |  |  |  |  |  |  |  |  |
Compensation expense |  |  | 70,290 |  |  | 71,187 |  |  | 213,524 |  |  | 206,754
Employee benefits |  |  | 12,873 |  |  | 12,968 |  |  | 42,591 |  |  | 41,472
Personnel expense |  |  | 83,163 |  |  | 84,155 |  |  | 256,115 |  |  | 248,226
Net occupancy expense |  |  | 10,068 |  |  | 11,222 |  |  | 30,818 |  |  | 34,203
Equipment expense |  |  | 3,349 |  |  | 3,598 |  |  | 10,203 |  |  | 11,623
Data processing expense |  |  | 14,590 |  |  | 13,844 |  |  | 43,167 |  |  | 41,412
Professional services expense |  |  | 6,584 |  |  | 7,656 |  |  | 21,917 |  |  | 31,978
Amortization of intangibles |  |  | 4,886 |  |  | 6,027 |  |  | 15,015 |  |  | 18,493
Telecommunications and postage |  |  | 3,284 |  |  | 3,485 |  |  | 9,917 |  |  | 10,607
Deposit insurance and regulatory fees |  |  | 5,969 |  |  | 4,225 |  |  | 17,415 |  |  | 12,033
Other real estate expense, net |  |  | (5,214) |  |  | 422 |  |  | (4,096) |  |  | 1,379
Other expense |  |  | 22,379 |  |  | 16,559 |  |  | 55,561 |  |  | 53,671
Total noninterest expense |  |  | 149,058 |  |  | 151,193 |  |  | 456,032 |  |  | 463,625
Income before income taxes |  |  | 58,491 |  |  | 55,768 |  |  | 123,970 |  |  | 157,943
Income taxes |  |  | 11,772 |  |  | 14,602 |  |  | 26,505 |  |  | 41,789
Net income |  | $ | 46,719 |  | $ | 41,166 |  | $ | 97,465 |  | $ | 116,154
Earnings per common share-basic |  | $ | 0.59 |  | $ | 0.52 |  | $ | 1.23 |  | $ | 1.45
Earnings per common share-diluted |  | $ | 0.59 |  | $ | 0.52 |  | $ | 1.23 |  | $ | 1.45
Dividends paid per share |  | $ | 0.24 |  | $ | 0.24 |  | $ | 0.72 |  | $ | 0.72
Weighted average shares outstanding-basic |  |  | 77,550 |  |  | 77,928 |  |  | 77,525 |  |  | 78,452
Weighted average shares outstanding-diluted |  |  | 77,677 |  |  | 78,075 |  |  | 77,653 |  |  | 78,609

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See notes to unaudited consolidated financial statements.

2

Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

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﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | September 30,
﻿ |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Net income |  | $ | 46,719 |  | $ | 41,166 |  | $ | 97,465 |  | $ | 116,154
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |
Net change in unrealized (loss) gain on available for sale securities and hedges |  |  | (5,604) |  |  | 15,131 |  |  | 39,997 |  |  | 2,174
Reclassification adjustment for net losses realized and included in earnings |  |  | 1,158 |  |  | 802 |  |  | 2,960 |  |  | 2,208
Valuation adjustment for employee benefit plans |  |  | (6,347) |  |  | 4,963 |  |  | (6,347) |  |  | (959)
Amortization of unrealized net loss on securities transferred to held to maturity |  |  | 1,108 |  |  | 1,023 |  |  | 2,736 |  |  | 2,609
Other comprehensive (loss) income before income taxes |  |  | (9,685) |  |  | 21,919 |  |  | 39,346 |  |  | 6,032
Income tax (benefit) expense |  |  | (3,537) |  |  | 8,002 |  |  | 14,440 |  |  | 2,125
Other comprehensive (loss) income net of income taxes |  |  | (6,148) |  |  | 13,917 |  |  | 24,906 |  |  | 3,907
Comprehensive income |  | $ | 40,571 |  | $ | 55,083 |  | $ | 122,371 |  | $ | 120,061

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See notes to unaudited consolidated financial statements.

3

Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  | Other |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  | Comprehensive |  |  |  |  |  |
﻿ |  | Common Stock |  | Capital |  | Retained |  | Income (Loss), |  | Treasury |  |  |
(in thousands, except share data) |  | Shares |  | Amount |  | Surplus |  | Earnings |  | net |  | Stock |  | Total
Balance, December 31, 2014 |  | 80,426,485 |  | $ | 267,820 |  | $ | 1,689,291 |  | $ | 723,496 |  | $ | (50,074) |  | $ | (158,131) |  | $ | 2,472,402
Net income |  | — |  |  | — |  |  | — |  |  | 116,154 |  |  | — |  |  | — |  |  | 116,154
Other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,907 |  |  | — |  |  | 3,907
Comprehensive income |  | — |  |  | — |  |  | — |  |  | 116,154 |  |  | 3,907 |  |  | — |  |  | 120,061
Cash dividends declared ($0.72 per common share) |  | — |  |  | — |  |  | — |  |  | (57,881) |  |  | — |  |  | — |  |  | (57,881)
Common stock activity, long-term incentive plan |  | 224,399 |  |  | 747 |  |  | 21,612 |  |  | — |  |  | — |  |  | (12,544) |  |  | 9,815
Purchase of common stock under stock buyback program |  | (3,131,886) |  |  | (10,429) |  |  | — |  |  | — |  |  | — |  |  | (80,407) |  |  | (90,836)
Balance, September 30, 2015 |  | 77,518,998 |  | $ | 258,138 |  | $ | 1,710,903 |  | $ | 781,769 |  | $ | (46,167) |  | $ | (251,082) |  | $ | 2,453,561
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, December 31, 2015 |  | 77,496,429 |  | $ | 258,063 |  | $ | 1,684,101 |  | $ | 777,944 |  | $ | (80,595) |  | $ | (226,370) |  | $ | 2,413,143
Net income |  | — |  |  | — |  |  | — |  |  | 97,465 |  |  | — |  |  | — |  |  | 97,465
Other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | 24,906 |  |  | — |  |  | 24,906
Comprehensive income |  | — |  |  | — |  |  | — |  |  | 97,465 |  |  | 24,906 |  |  | — |  |  | 122,371
Cash dividends declared ($0.72 per common share) |  | — |  |  | — |  |  | — |  |  | (57,349) |  |  | — |  |  | — |  |  | (57,349)
Common stock activity, long-term incentive plan |  | 47,547 |  |  | 159 |  |  | 13,209 |  |  | — |  |  | — |  |  | (3,227) |  |  | 10,141
Issuance of stock from dividend reinvestment |  | 26,539 |  |  | 88 |  |  | (163) |  |  | — |  |  | — |  |  | 896 |  |  | 821
Balance, September 30, 2016 |  | 77,570,515 |  | $ | 258,310 |  | $ | 1,697,147 |  | $ | 818,060 |  | $ | (55,689) |  | $ | (228,701) |  | $ | 2,489,127

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See notes to unaudited consolidated financial statements.

4

Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

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﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
|  | Nine Months Ended
﻿ |  | September 30,
(in thousands) |  | 2016 |  | 2015
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |
Net income |  | $ | 97,465 |  | $ | 116,154
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Depreciation and amortization |  |  | 21,350 |  |  | 21,533
Provision for loan losses |  |  | 96,204 |  |  | 22,842
Gain on other real estate owned |  |  | (5,145) |  |  | (521)
Deferred tax (benefit) expense |  |  | (14,713) |  |  | 11,895
Increase in cash surrender value of life insurance contracts |  |  | (8,807) |  |  | (7,700)
(Gain) loss on disposal of other assets |  |  | (6,014) |  |  | 1,626
Net (increase) decrease in loans held for sale |  |  | (21,698) |  |  | 498
Net amortization of securities premium/discount |  |  | 20,836 |  |  | 15,456
Amortization of intangible assets |  |  | 15,015 |  |  | 18,493
Amortization of FDIC indemnification asset |  |  | 4,678 |  |  | 4,034
Stock-based compensation expense |  |  | 10,555 |  |  | 9,469
Increase (decrease) in interest payable and other liabilities |  |  | 8,502 |  |  | (6,753)
Net payments (to) from FDIC for loss share claims |  |  | (436) |  |  | 14,667
Decrease in FDIC loss share receivable |  |  | 3,487 |  |  | 6,309
Decrease (increase) in other assets |  |  | 40,693 |  |  | (9,980)
Other, net |  |  | 6,572 |  |  | 4,768
Net cash provided by operating activities |  |  | 268,544 |  |  | 222,790
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |
Proceeds from sales of securities |  |  | 141,716 |  |  | 9,287
Proceeds from maturities of securities available for sale |  |  | 298,810 |  |  | 755,663
Purchases of securities available for sale |  |  | (720,241) |  |  | (1,286,443)
Proceeds from maturities of securities held to maturity |  |  | 307,633 |  |  | 439,410
Purchases of securities held to maturity |  |  | (371,657) |  |  | (658,226)
Net decrease in short-term investments |  |  | 436,635 |  |  | 608,534
Proceeds from sales of loans |  |  | 166,922 |  |  | —
Net increase in loans |  |  | (591,696) |  |  | (882,702)
Purchase of life insurance contracts |  |  | (40,000) |  |  | —
Purchases of property and equipment |  |  | (10,817) |  |  | (19,529)
Proceeds from sales of property and equipment |  |  | 677 |  |  | 13,607
Proceeds from sales of other real estate |  |  | 20,709 |  |  | 39,612
Other, net |  |  | (3,651) |  |  | (8,603)
Net cash used in investing activities |  |  | (364,960) |  |  | (989,390)
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |
Net increase in deposits |  |  | 536,581 |  |  | 867,117
Net decrease in short-term borrowings |  |  | (347,688) |  |  | (102,391)
Repayments of long-term debt |  |  | (16,796) |  |  | (31,621)
Net proceeds from issuance of long-term debt |  |  | 6,796 |  |  | 149,153
Dividends paid |  |  | (57,349) |  |  | (57,881)
Purchase of common stock under stock buyback program |  |  | — |  |  | (90,836)
Proceeds from exercise of stock options |  |  | 49 |  |  | 347
Issuance of stock from dividend reinvestment |  |  | 821 |  |  | —
Net cash provided by financing activities |  |  | 122,414 |  |  | 733,888
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS |  |  | 25,998 |  |  | (32,712)
CASH AND DUE FROM BANKS, BEGINNING |  |  | 303,874 |  |  | 356,455
CASH AND DUE FROM BANKS, ENDING |  | $ | 329,872 |  | $ | 323,743
SUPPLEMENTAL INFORMATION FOR NON-CASH |  |  |  |  |  |
INVESTING AND FINANCING ACTIVITIES |  |  |  |  |  |
Assets acquired in settlement of loans |  | $ | 12,012 |  | $ | 12,997

﻿

See notes to unaudited consolidated financial statements.

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5

Table of Contents

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. The Company has also evaluated all subsequent events for potential recognition and disclosure through the filing of this Form 10-Q. Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted in this 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, 2015. Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

Certain prior period amounts have been reclassified to conform to the current period presentation. Beginning in the second quarter of 2016, the presentation of loan disclosures has been modified from prior filings as discussed in Note 3 – Loans and Allowance for Loan Losses. Effective January 1, 2016, the Company retrospectively adopted accounting guidance intended to simplify the presentation of debt issuance costs by requiring that costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Historically, debt issuance costs were reported in the “Other Assets” line items in the Consolidated Balance Sheets and Statements of Cash Flows. All historical periods have been restated to reflect the revised presentation and new required disclosures. The adoption of this guidance did not have a material impact on the Company’s financial condition or operating results.

Use of Estimates

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

Critical Accounting Policies and Estimates

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2015.

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6

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities Available for Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | September 30, 2016 |  | December 31, 2015
﻿ |  |  |  | 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 |  | $ | 20,604 |  | $ | 67 |  | $ | — |  | $ | 20,671 |  | $ | 135 |  | $ | — |  | $ | 1 |  | $ | 134
Municipal obligations |  |  | 214,403 |  |  | 3,024 |  |  | 409 |  |  | 217,018 |  |  | 39,410 |  |  | 235 |  |  | 38 |  |  | 39,607
Residential mortgage-backed securities |  |  | 1,737,812 |  |  | 38,204 |  |  | 91 |  |  | 1,775,925 |  |  | 1,750,168 |  |  | 19,387 |  |  | 11,182 |  |  | 1,758,373
Commercial mortgage-backed securities |  |  | 172,525 |  |  | 687 |  |  | 103 |  |  | 173,109 |  |  | — |  |  | — |  |  | — |  |  | —
Collateralized mortgage obligations |  |  | 220,912 |  |  | 2,344 |  |  | — |  |  | 223,256 |  |  | 291,085 |  |  | 140 |  |  | 2,192 |  |  | 289,033
Corporate debt securities |  |  | 3,500 |  |  | — |  |  | — |  |  | 3,500 |  |  | 3,500 |  |  | — |  |  | — |  |  | 3,500
Equity securities |  |  | 865 |  |  | 336 |  |  | — |  |  | 1,201 |  |  | 2,447 |  |  | 358 |  |  | 48 |  |  | 2,757
﻿ |  | $ | 2,370,621 |  | $ | 44,662 |  | $ | 603 |  | $ | 2,414,680 |  | $ | 2,086,745 |  | $ | 20,120 |  | $ | 13,461 |  | $ | 2,093,404

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities Held to Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | September 30, 2016 |  | December 31, 2015
﻿ |  |  |  | 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 |  | $ | 50,000 |  | $ | 860 |  | $ | — |  | $ | 50,860 |  | $ | 50,000 |  | $ | — |  | $ | 410 |  | $ | 49,590
Municipal obligations |  |  | 541,839 |  |  | 11,182 |  |  | 1,462 |  |  | 551,559 |  |  | 185,890 |  |  | 3,475 |  |  | 1,166 |  |  | 188,199
Residential mortgage-backed securities |  |  | 903,703 |  |  | 36,200 |  |  | — |  |  | 939,903 |  |  | 1,014,135 |  |  | 15,585 |  |  | 1,589 |  |  | 1,028,131
Collateralized mortgage obligations |  |  | 932,890 |  |  | 8,767 |  |  | 1,439 |  |  | 940,218 |  |  | 1,120,363 |  |  | 2,244 |  |  | 12,676 |  |  | 1,109,931
﻿ |  | $ | 2,428,432 |  | $ | 57,009 |  | $ | 2,901 |  | $ | 2,482,540 |  | $ | 2,370,388 |  | $ | 21,304 |  | $ | 15,841 |  | $ | 2,375,851

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The following table presents the amortized cost and estimated fair value of debt securities at September 30, 2016 by contractual maturity. Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.

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﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
(in thousands) |  | Amortized |  | Fair
Debt Securities Available for Sale |  | Cost |  | Value
Due in one year or less |  | $ | 4,864 |  | $ | 4,900
Due after one year through five years |  |  | 47,593 |  |  | 48,597
Due after five years through ten years |  |  | 609,897 |  |  | 621,549
Due after ten years |  |  | 1,707,402 |  |  | 1,738,433
Total available for sale debt securities |  | $ | 2,369,756 |  | $ | 2,413,479
﻿ |  |  |  |  |  |
﻿ |  | Amortized |  | Fair
Debt Securities Held to Maturity |  | Cost |  | Value
Due in one year or less |  | $ | 14,982 |  | $ | 15,019
Due after one year through five years |  |  | 135,330 |  |  | 138,737
Due after five years through ten years |  |  | 510,536 |  |  | 517,652
Due after ten years |  |  | 1,767,584 |  |  | 1,811,132
Total held to maturity securities |  | $ | 2,428,432 |  | $ | 2,482,540

The Company held no securities c lassified as trading at September 30, 2016 or December 31, 2015.

7

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2016 |  | Losses < 12 months |  | Losses 12 months or > |  | Total
﻿ |  |  |  | Gross |  |  |  | Gross |  |  |  | Gross
﻿ |  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(in thousands) |  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
Municipal obligations |  | $ | 69,801 |  |  | 409 |  | $ | — |  |  | — |  | $ | 69,801 |  | $ | 409
Residential mortgage-backed securities |  |  | 6,653 |  |  | 55 |  |  | 4,534 |  |  | 36 |  |  | 11,187 |  |  | 91
Commercial mortgage-backed securities |  |  | 31,640 |  |  | 103 |  |  | — |  |  | — |  |  | 31,640 |  |  | 103
Collateralized mortgage obligations |  |  | 6,910 |  |  | — |  |  | — |  |  | — |  |  | 6,910 |  |  | —
﻿ |  | $ | 115,004 |  | $ | 567 |  | $ | 4,534 |  | $ | 36 |  | $ | 119,538 |  | $ | 603

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2015 |  | Losses < 12 months |  | Losses 12 months or > |  | Total
﻿ |  |  |  | Gross |  |  |  | Gross |  |  |  | Gross
﻿ |  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(in thousands) |  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
US Treasury and government agency securities |  | $ | — |  | $ | — |  | $ | 82 |  | $ | 1 |  | $ | 82 |  | $ | 1
Municipal obligations |  |  | 8,296 |  |  | 38 |  |  | — |  |  | — |  |  | 8,296 |  |  | 38
Residential mortgage-backed securities |  |  | 831,156 |  |  | 8,257 |  |  | 116,126 |  |  | 2,925 |  |  | 947,282 |  |  | 11,182
Collateralized mortgage obligations |  |  | 208,397 |  |  | 1,257 |  |  | 33,138 |  |  | 935 |  |  | 241,535 |  |  | 2,192
Equity securities |  |  | 20 |  |  | 1 |  |  | 1,473 |  |  | 47 |  |  | 1,493 |  |  | 48
﻿ |  | $ | 1,047,869 |  | $ | 9,553 |  | $ | 150,819 |  | $ | 3,908 |  | $ | 1,198,688 |  | $ | 13,461

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Held to maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2016 |  | Losses < 12 months |  | Losses 12 months or > |  | Total
﻿ |  |  |  | Gross |  |  |  | Gross |  |  |  | Gross
﻿ |  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(in thousands) |  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
Municipal obligations |  | $ | 98,295 |  | $ | 1,035 |  | $ | 11,843 |  | $ | 427 |  | $ | 110,138 |  | $ | 1,462
Collateralized mortgage obligations |  |  | 119,172 |  |  | 146 |  |  | 132,960 |  |  | 1,293 |  |  | 252,132 |  |  | 1,439
﻿ |  | $ | 217,467 |  | $ | 1,181 |  | $ | 144,803 |  | $ | 1,720 |  | $ | 362,270 |  | $ | 2,901

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Held to maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2015 |  | Losses < 12 months |  | Losses 12 months or > |  | Total
﻿ |  |  |  | Gross |  |  |  | Gross |  |  |  | Gross
﻿ |  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(in thousands) |  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
U.S. Treasury and government agency securities |  | $ | 45,590 |  | $ | 410 |  | $ | — |  | $ | — |  | $ | 45,590 |  | $ | 410
Municipal obligations |  |  | 22,652 |  |  | 301 |  |  | 48,727 |  |  | 865 |  |  | 71,379 |  |  | 1,166
Residential mortgage-backed securities |  |  | 349,635 |  |  | 1,589 |  |  | — |  |  | — |  |  | 349,635 |  |  | 1,589
Collateralized mortgage obligations |  |  | 516,330 |  |  | 2,894 |  |  | 370,756 |  |  | 9,782 |  |  | 887,086 |  |  | 12,676
﻿ |  | $ | 934,207 |  | $ | 5,194 |  | $ | 419,483 |  | $ | 10,647 |  | $ | 1,353,690 |  | $ | 15,841

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

Proceeds from the sales of securities were approximately $141.7 million with an associated realiz ed gain of $1.5 million and $9.3 million with an associated gain of $0.3 million for the nine months ended September 30, 2016 and 2015, respectively.

Securities with carrying values totaling $3.7 billion at September 30, 2016 and $3.5 billion at December 31, 2015 were pledged as collateral primarily to secure public deposits or securities sold under agreements to repurchase.

8

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses

The presentation of loan disclosures has been modified from prior filings to eliminate segmentation of Acquired (2011 Whitney Holding Corporation transaction) and FDIC Acquired (2009 Peoples First Community Bank transaction) due to the significantly reduced size of these portfolios. The revised presentation reflects purchased credit impaired (“PCI”) loan information in select tables. PCI loans include the total FDIC Acquired portfolio and the portion of the Acquired portfolio deemed credit impaired at acquisition. In addition, the revised presentation includes further segmentation of the commercial real estate portfolio between owner occupied and income producing loans due to the significant differences in risk characteristics of these loans and to conform more closely to regulatory concentration segments and general industry practices. All prior period information has been reclassified to conform to the current period presentation.

Loans, net of unearned income, by portfolio are presented in the table below.

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﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | September 30, |  | December 31,
(in thousands) |  | 2016 |  | 2015
﻿ |  |  |  |  |  |
Commercial non-real estate |  | $ | 7,133,928 |  | $ | 6,995,824
Commercial real estate - owner occupied |  |  | 1,901,825 |  |  | 1,859,469
Total commercial & industrial |  |  | 9,035,753 |  |  | 8,855,293
Commercial real estate - income producing |  |  | 1,990,309 |  |  | 1,553,082
Construction and land development |  |  | 946,592 |  |  | 1,151,950
Residential mortgages |  |  | 2,037,162 |  |  | 2,049,524
Consumer |  |  | 2,061,005 |  |  | 2,093,465
Total loans |  | $ | 16,070,821 |  | $ | 15,703,314

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9

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following briefly describes the composition of each loan category.

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Commercial and industrial

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

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

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

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Commercial real estate – income producing

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

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Construction and land development

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

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Residential Mortgages

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

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Consumer

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

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10

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Allowance for Loan Losses

The following schedule shows activity in the allowance for loan losses by portfolio class for the nine months ended September 30, 2016 and 2015, as well as the corresponding recorded investment in loans at the end of each period.

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  | Commercial |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Commercial |  | real estate- |  | Total |  | real estate- |  | Construction |  |  |  |  |  |  |  |  |
﻿ |  |  | non-real |  | owner |  | commercial & |  | income |  | and land |  | Residential |  |  |  |  |  |
(in thousands) |  | estate |  | occupied |  | industrial |  | producing |  | development |  | mortgages |  | Consumer |  | Total
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Nine Months Ended September 30, 2016
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 109,428 |  | $ | 9,858 |  | $ | 119,286 |  | $ | 6,041 |  | $ | 5,642 |  | $ | 25,353 |  | $ | 24,857 |  | $ | 181,179
Purchased credit impaired activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Charge-offs |  |  | — |  |  | (28) |  |  | (28) |  |  | (1) |  |  | (18) |  |  | (91) |  |  | (8) |  |  | (146)
Recoveries |  |  | 76 |  |  | 163 |  |  | 239 |  |  | 2 |  |  | 98 |  |  | 33 |  |  | 112 |  |  | 484
Net provision for loan losses |  |  | 54 |  |  | (140) |  |  | (86) |  |  | (436) |  |  | (253) |  |  | 1,685 |  |  | (1,633) |  |  | (723)
(Decrease) increase in FDIC loss share receivable |  |  | (2) |  |  | — |  |  | (2) |  |  | — |  |  | — |  |  | (3,341) |  |  | 316 |  |  | (3,027)
Non-purchased credit impaired activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Charge-offs |  |  | (27,504) |  |  | (1,660) |  |  | (29,164) |  |  | (191) |  |  | (827) |  |  | (908) |  |  | (17,403) |  |  | (48,493)
Recoveries |  |  | 2,709 |  |  | 287 |  |  | 2,996 |  |  | 673 |  |  | 1,422 |  |  | 497 |  |  | 4,272 |  |  | 9,860
Net provision for loan losses |  |  | 74,500 |  |  | 2,303 |  |  | 76,803 |  |  | 4,862 |  |  | (216) |  |  | 964 |  |  | 14,514 |  |  | 96,927
Ending balance |  | $ | 159,261 |  | $ | 10,783 |  | $ | 170,044 |  | $ | 10,950 |  | $ | 5,848 |  | $ | 24,192 |  | $ | 25,027 |  | $ | 236,061
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 20,665 |  | $ | 223 |  | $ | 20,888 |  | $ | 57 |  | $ | 6 |  | $ | 94 |  | $ | 85 |  | $ | 21,130
Amounts related to purchased credit impaired loans |  |  | 574 |  |  | 1,088 |  |  | 1,662 |  |  | 279 |  |  | 484 |  |  | 15,949 |  |  | 1,334 |  |  | 19,708
Collectively evaluated for impairment |  |  | 138,022 |  |  | 9,472 |  |  | 147,494 |  |  | 10,614 |  |  | 5,358 |  |  | 8,149 |  |  | 23,608 |  |  | 195,223
Total allowance |  | $ | 159,261 |  | $ | 10,783 |  | $ | 170,044 |  | $ | 10,950 |  | $ | 5,848 |  | $ | 24,192 |  | $ | 25,027 |  | $ | 236,061
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 235,039 |  | $ | 6,458 |  | $ | 241,497 |  | $ | 7,655 |  | $ | 2,062 |  | $ | 3,864 |  | $ | 1,485 |  | $ | 256,563
Purchased credit impaired loans |  |  | 11,534 |  |  | 16,417 |  |  | 27,951 |  |  | 8,087 |  |  | 8,436 |  |  | 145,273 |  |  | 12,045 |  |  | 201,792
Collectively evaluated for impairment |  |  | 6,887,355 |  |  | 1,878,950 |  |  | 8,766,305 |  |  | 1,974,567 |  |  | 936,094 |  |  | 1,888,025 |  |  | 2,047,475 |  |  | 15,612,466
Total loans |  | $ | 7,133,928 |  | $ | 1,901,825 |  |  | 9,035,753 |  | $ | 1,990,309 |  | $ | 946,592 |  | $ | 2,037,162 |  | $ | 2,061,005 |  | $ | 16,070,821

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11

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

﻿

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  | Commercial |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Commercial |  | real estate- |  | Total |  | real estate- |  | Construction |  |  |  |  |  |  |  |  |
﻿ |  | non-real |  | owner |  | commercial & |  | income |  | and land |  | Residential |  |  |  |  |  |
(in thousands) |  | estate |  | occupied |  | industrial |  | producing |  | development |  | mortgages |  | Consumer |  | Total
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Nine Months ended September 30, 2015
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 51,169 |  | $ | 13,536 |  | $ | 64,705 |  | $ | 7,546 |  | $ | 6,421 |  | $ | 28,660 |  | $ | 21,430 |  | $ | 128,762
Purchased credit impaired activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Charge-offs |  |  | (1,425) |  |  | (379) |  |  | (1,804) |  |  | (2,353) |  |  | (406) |  |  | (748) |  |  | (140) |  |  | (5,451)
Recoveries |  |  | 1,699 |  |  | 937 |  |  | 2,636 |  |  | 20 |  |  | 896 |  |  | 5 |  |  | 185 |  |  | 3,742
Net provision for loan losses |  |  | (950) |  |  | (1,614) |  |  | (2,564) |  |  | 994 |  |  | 235 |  |  | 1,181 |  |  | (1,232) |  |  | (1,386)
Increase (decrease) in FDIC loss share receivable |  |  | 314 |  |  | (396) |  |  | (82) |  |  | 919 |  |  | (6) |  |  | (2,718) |  |  | (97) |  |  | (1,984)
Non-purchased credit impaired activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Charge-offs |  |  | (3,068) |  |  | (664) |  |  | (3,732) |  |  | (464) |  |  | (1,483) |  |  | (1,451) |  |  | (10,431) |  |  | (17,561)
Recoveries |  |  | 2,589 |  |  | 249 |  |  | 2,838 |  |  | 386 |  |  | 2,006 |  |  | 578 |  |  | 3,418 |  |  | 9,226
Net provision for loan losses |  |  | 13,594 |  |  | 2,436 |  |  | 16,030 |  |  | (1,915) |  |  | (289) |  |  | 283 |  |  | 10,119 |  |  | 24,228
Ending balance |  | $ | 63,922 |  | $ | 14,105 |  | $ | 78,027 |  | $ | 5,133 |  | $ | 7,374 |  | $ | 25,790 |  | $ | 23,252 |  | $ | 139,576
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 5,588 |  | $ | 2,723 |  | $ | 8,311 |  | $ | 187 |  | $ | 21 |  | $ | 96 |  | $ | 3 |  | $ | 8,618
Amounts related to purchased credit impaired loans |  |  | 549 |  |  | 1,304 |  |  | 1,853 |  |  | 885 |  |  | 1,727 |  |  | 18,329 |  |  | 2,711 |  |  | 25,505
Collectively evaluated for impairment |  |  | 57,785 |  |  | 10,078 |  |  | 67,863 |  |  | 4,061 |  |  | 5,626 |  |  | 7,365 |  |  | 20,538 |  |  | 105,453
Total allowance |  | $ | 63,922 |  | $ | 14,105 |  | $ | 78,027 |  | $ | 5,133 |  | $ | 7,374 |  | $ | 25,790 |  | $ | 23,252 |  | $ | 139,576
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 75,345 |  | $ | 21,465 |  | $ | 96,810 |  | $ | 12,520 |  | $ | 2,053 |  | $ | 903 |  | $ | 157 |  | $ | 112,443
Purchased credit impaired loans |  |  | 13,158 |  |  | 21,674 |  |  | 34,832 |  |  | 15,280 |  |  | 16,336 |  |  | 170,033 |  |  | 13,424 |  |  | 249,905
Collectively evaluated for impairment |  |  | 6,257,491 |  |  | 1,800,015 |  |  | 8,057,506 |  |  | 1,456,432 |  |  | 1,067,196 |  |  | 1,842,853 |  |  | 1,976,715 |  |  | 14,400,702
Total loans |  | $ | 6,345,994 |  | $ | 1,843,154 |  |  | 8,189,148 |  | $ | 1,484,232 |  | $ | 1,085,585 |  | $ | 2,013,789 |  | $ | 1,990,296 |  | $ | 14,763,050
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

﻿

﻿

Impaired Loans

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

﻿

﻿

﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | September 30, |  | December 31,
(in thousands) |  | 2016 |  | 2015
Commercial non-real estate |  | $ | 240,298 |  | $ | 88,743
Commercial real estate - owner occupied |  |  | 15,331 |  |  | 10,001
Total commercial & industrial |  |  | 255,629 |  |  | 98,744
Commercial real estate - income producing |  |  | 9,318 |  |  | 10,815
Construction and land development |  |  | 4,930 |  |  | 17,294
Residential mortgages |  |  | 21,181 |  |  | 23,799
Consumer |  |  | 11,752 |  |  | 9,061
Total loans |  | $ | 302,810 |  | $ | 159,713

﻿

12

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $48.2 million and $8.8 million at September 30, 2016 and December 31, 2015, respectively. Total TDRs, both accruing and nonaccruing, were $56.3 million as of September 30, 2016 and $13.1 million at December 31, 2015. All TDRs are individually evaluated for impairment.

The table below details TDRs that were modified during the nine months ended September 30, 2016 and September 30, 2015 by portfolio class.

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ | Nine Months Ended
($ in thousands) |  | September 30, 2016 |  |  |  | September 30, 2015
﻿ |  |  |  |  | Pre-Modification |  | Post-Modification |  |  |  |  |  | Pre-Modification |  | Post-Modification
﻿ |  |  |  |  | Outstanding |  | Outstanding |  |  |  |  |  | Outstanding |  | Outstanding
﻿ |  | Number of |  |  | Recorded |  | Recorded |  |  | Number of |  |  | Recorded |  | Recorded
Troubled Debt Restructurings: |  | Contracts |  |  | Investment |  | Investment |  | Contracts |  | Investment |  | Investment
Commercial non-real estate |  | 17 |  |  | $ | 57,915 |  |  | $ | 57,915 |  |  |  | — |  |  | $ | — |  |  | $ | —
Commercial real estate - owner occupied |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | —
Total commercial & industrial |  | 17 |  |  |  | 57,915 |  |  |  | 57,915 |  |  |  | — |  |  |  | — |  |  |  | —
Commercial real estate - income producing |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | 482 |  |  |  | 482
Construction and land development |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | —
Residential mortgages |  | 6 |  |  |  | 532 |  |  |  | 532 |  |  |  | 4 |  |  |  | 185 |  |  |  | 185
Consumer |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | 20 |  |  |  | 20
Total loans |  | 23 |  |  | $ | 58,447 |  |  | $ | 58,447 |  |  |  | 6 |  |  | $ | 687 |  |  | $ | 687

﻿

The TDRs during the nine months ended September 30, 2016 reflected in the table above include $43.4 million of loans with extended amortization terms or other payment concessions, $14.7 million of loans with significant covenant waivers and $0.4 million with other modifications. The TDRs during the nine months ended September 30, 2015 include $0.7 million of loans with extended terms or other payment concessions and $0.1 million of other modifications.

No TDRs that subsequently defaulted within twelve months of modification were recorded in the nine months ended September 30, 2016 or 2015.

13

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at September 30, 2016 and December 31, 2015. Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate relationship balances of $1 million or more.

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |
﻿ | September 30, 2016
﻿ |  | Recorded investment |  |  | Recorded investment |  |  | Unpaid |  |  |
(in thousands) |  | without an allowance |  |  | with an allowance |  |  | principal balance |  |  | Related allowance
Commercial non-real estate | $ | 118,527 |  | $ | 116,512 |  | $ | 247,732 |  | $ | 20,665
Commercial real estate - owner occupied |  | 4,351 |  |  | 2,107 |  |  | 6,850 |  |  | 223
Total commercial & industrial |  | 122,878 |  |  | 118,619 |  |  | 254,582 |  |  | 20,888
Commercial real estate - income producing |  | 5,654 |  |  | 2,001 |  |  | 7,882 |  |  | 57
Construction and land development |  | 1,228 |  |  | 834 |  |  | 2,905 |  |  | 6
Residential mortgages |  | 2,908 |  |  | 956 |  |  | 4,382 |  |  | 94
Consumer |  | — |  |  | 1,485 |  |  | 1,485 |  |  | 85
Total loans | $ | 132,668 |  | $ | 123,895 |  | $ | 271,236 |  | $ | 21,130
﻿ |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |
﻿ | December 31, 2015
﻿ |  | Recorded investment |  |  | Recorded investment |  |  | Unpaid |  |  |
(in thousands) |  | without an allowance |  |  | with an allowance |  |  | principal balance |  |  | Related allowance
Commercial non-real estate | $ | 34,788 |  | $ | 46,834 |  | $ | 84,988 |  | $ | 19,031
Commercial real estate - owner occupied |  | 4,747 |  |  | 661 |  |  | 5,931 |  |  | 23
Total commercial & industrial |  | 39,535 |  |  | 47,495 |  |  | 90,919 |  |  | 19,054
Commercial real estate - income producing |  | 3,038 |  |  | 8,085 |  |  | 11,363 |  |  | 1,382
Construction and land development |  | 12,461 |  |  | 1,765 |  |  | 14,784 |  |  | 392
Residential mortgages |  | — |  |  | 895 |  |  | 1,405 |  |  | 127
Consumer |  | — |  |  | 152 |  |  | 152 |  |  | 33
Total loans | $ | 55,034 |  | $ | 58,392 |  | $ | 118,623 |  | $ | 20,988

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended
﻿ |  | September 30, 2016 | September 30, 2015
﻿ |  | Average |  | Interest |  | Average |  |  | Interest
﻿ |  | recorded |  | income |  | recorded |  |  | income
(in thousands) |  | investment |  | recognized |  | investment |  |  | recognized
Commercial non-real estate |  | $ | 233,913 |  | $ | 155 |  | $ | 53,862 |  | $ | 3
Commercial real estate - owner occupied |  |  | 6,374 |  |  | 10 |  |  | 21,584 |  |  | 16
Total commercial & industrial |  |  | 240,287 |  |  | 165 |  |  | 75,446 |  |  | 19
Commercial real estate - income producing |  |  | 7,729 |  |  | 24 |  |  | 12,601 |  |  | 15
Construction and land development |  |  | 1,655 |  |  | — |  |  | 3,207 |  |  | 7
Residential mortgages |  |  | 2,466 |  |  | 3 |  |  | 1,136 |  |  | 1
Consumer |  |  | 826 |  |  | 2 |  |  | 137 |  |  | —
Total loans |  | $ | 252,963 |  | $ | 194 |  | $ | 92,527 |  | $ | 42

﻿

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14

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Nine Months Ended
﻿ |  | September 30, 2016 | September 30, 2015
﻿ |  | Average |  | Interest |  | Average |  |  | Interest
﻿ |  | recorded |  | income |  | recorded |  |  | income
(in thousands) |  | investment |  | recognized |  | investment |  |  | recognized
Commercial non-real estate |  | $ | 197,382 |  | $ | 1,002 |  | $ | 31,570 |  | $ | 6
Commercial real estate - owner occupied |  |  | 6,015 |  |  | 39 |  |  | 14,836 |  |  | 40
Total commercial & industrial |  |  | 203,397 |  |  | 1,041 |  |  | 46,406 |  |  | 46
Commercial real estate - income producing |  |  | 8,624 |  |  | 67 |  |  | 10,905 |  |  | 56
Construction and land development |  |  | 7,821 |  |  | — |  |  | 4,762 |  |  | 66
Residential mortgages |  |  | 1,444 |  |  | 7 |  |  | 1,837 |  |  | 20
Consumer |  |  | 348 |  |  | 4 |  |  | 101 |  |  | 3
Total loans |  | $ | 221,634 |  | $ | 1,119 |  | $ | 64,011 |  | $ | 191

﻿

﻿

﻿

Aging Analysis

The tables below present the age analysis of past due loans by portfolio class at September 30, 2016 and December 31, 2015. Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be current.

﻿

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Recorded
﻿ |  |  |  |  |  | Greater than |  |  |  |  |  |  |  |  | investment
﻿ |  | 30-59 days |  | 60-89 days |  | 90 days |  | Total |  |  |  | Total |  | > 90 days and
September 30, 2016 |  | past due |  | past due |  | past due |  | past due |  | Current |  | Loans |  | still accruing
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 15,501 |  | $ | 24,566 |  | $ | 63,794 |  | $ | 103,861 |  | $ | 7,030,067 |  | $ | 7,133,928 |  | $ | 543
Commercial real estate - owner occupied |  |  | 3,006 |  |  | 1,115 |  |  | 7,257 |  |  | 11,378 |  |  | 1,890,447 |  |  | 1,901,825 |  |  | —
Total commercial & industrial |  |  | 18,507 |  |  | 25,681 |  |  | 71,051 |  |  | 115,239 |  |  | 8,920,514 |  |  | 9,035,753 |  |  | 543
Commercial real estate - income producing |  |  | 1,873 |  |  | 225 |  |  | 4,421 |  |  | 6,519 |  |  | 1,983,790 |  |  | 1,990,309 |  |  | —
Construction and land development |  |  | 1,069 |  |  | 1,565 |  |  | 7,358 |  |  | 9,992 |  |  | 936,600 |  |  | 946,592 |  |  | 3,501
Residential mortgages |  |  | 23,067 |  |  | 6,771 |  |  | 11,541 |  |  | 41,379 |  |  | 1,995,783 |  |  | 2,037,162 |  |  | —
Consumer |  |  | 15,650 |  |  | 5,402 |  |  | 7,609 |  |  | 28,661 |  |  | 2,032,344 |  |  | 2,061,005 |  |  | 889
Total |  | $ | 60,166 |  | $ | 39,644 |  | $ | 101,980 |  | $ | 201,790 |  | $ | 15,869,031 |  | $ | 16,070,821 |  | $ | 4,933

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Recorded
﻿ |  |  |  |  |  |  | Greater than |  |  |  |  |  |  |  |  | investment
﻿ |  | 30-59 days |  | 60-89 days |  | 90 days |  | Total |  |  |  | Total |  | > 90 days and
December 31, 2015 |  | past due |  | past due |  | past due |  | past due |  | Current |  | Loans |  | still accruing
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 17,406 |  | $ | 1,468 |  | $ | 25,007 |  | $ | 43,881 |  | $ | 6,951,943 |  | $ | 6,995,824 |  | $ | 3,060
Commercial real estate - owner occupied |  |  | 5,898 |  |  | 802 |  |  | 6,646 |  |  | 13,346 |  |  | 1,846,123 |  |  | 1,859,469 |  |  | 535
Total commercial & industrial |  |  | 23,304 |  |  | 2,270 |  |  | 31,653 |  |  | 57,227 |  |  | 8,798,066 |  |  | 8,855,293 |  |  | 3,595
Commercial real estate - income producing |  |  | 871 |  |  | 603 |  |  | 6,382 |  |  | 7,856 |  |  | 1,545,226 |  |  | 1,553,082 |  |  | 499
Construction and land development |  |  | 19,886 |  |  | 436 |  |  | 4,043 |  |  | 24,365 |  |  | 1,127,585 |  |  | 1,151,950 |  |  | 1,230
Residential mortgages |  |  | 18,657 |  |  | 4,360 |  |  | 11,840 |  |  | 34,857 |  |  | 2,014,667 |  |  | 2,049,524 |  |  | 163
Consumer |  |  | 16,309 |  |  | 4,432 |  |  | 8,645 |  |  | 29,386 |  |  | 2,064,079 |  |  | 2,093,465 |  |  | 2,166
Total |  | $ | 79,027 |  | $ | 12,101 |  | $ | 62,563 |  | $ | 153,691 |  | $ | 15,549,623 |  | $ | 15,703,314 |  | $ | 7,653

﻿

15

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Credit Quality Indicators

The following tables present the credit quality indicators by segments and portfolio class of loans at September 30, 2016 and December 31, 2015.

﻿

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016
(in thousands) |  | Commercial non-real estate |  | Commercial real estate - owner-occupied |  | Total commercial & industrial |  | Commercial real estate - income producing |  | Construction and land development |  | Total commercial |
Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 5,899,626 |  | $ | 1,721,031 |  | $ | 7,620,657 |  | $ | 1,876,423 |  | $ | 904,550 |  | $ | 10,401,630 |
Pass-Watch |  |  | 180,467 |  |  | 42,727 |  |  | 223,194 |  |  | 69,773 |  |  | 21,945 |  |  | 314,912 |
Special Mention |  |  | 196,408 |  |  | 32,046 |  |  | 228,454 |  |  | 6,100 |  |  | 198 |  |  | 234,752 |
Substandard |  |  | 827,476 |  |  | 106,021 |  |  | 933,497 |  |  | 38,000 |  |  | 19,899 |  |  | 991,396 |
Doubtful |  |  | 29,951 |  |  | — |  |  | 29,951 |  |  | 13 |  |  | — |  |  | 29,964 |
Total |  | $ | 7,133,928 |  | $ | 1,901,825 |  | $ | 9,035,753 |  | $ | 1,990,309 |  | $ | 946,592 |  | $ | 11,972,654 |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | December 31, 2015
(in thousands) |  | Commercial non-real estate |  | Commercial real estate - owner-occupied |  | Total commercial & industrial |  | Commercial real estate - income producing |  | Construction and land development |  | Total commercial |
Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 6,260,863 |  | $ | 1,718,725 |  | $ | 7,979,588 |  | $ | 1,502,484 |  | $ | 1,095,296 |  | $ | 10,577,368 |
Pass-Watch |  |  | 168,589 |  |  | 31,764 |  |  | 200,353 |  |  | 14,717 |  |  | 6,841 |  |  | 221,911 |
Special Mention |  |  | 211,230 |  |  | 41,147 |  |  | 252,377 |  |  | 5,905 |  |  | 12,297 |  |  | 270,579 |
Substandard |  |  | 355,098 |  |  | 67,833 |  |  | 422,931 |  |  | 29,960 |  |  | 37,516 |  |  | 490,407 |
Doubtful |  |  | 44 |  |  | — |  |  | 44 |  |  | 16 |  |  | — |  |  | 60 |
Total |  | $ | 6,995,824 |  | $ | 1,859,469 |  | $ | 8,855,293 |  | $ | 1,553,082 |  | $ | 1,151,950 |  | $ | 11,560,325 |

﻿

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016 |  | December 31, 2015
(in thousands) |  | Residential mortgage |  | Consumer |  | Total |  | Residential mortgage |  | Consumer |  | Total |
Performing |  | $ | 2,015,981 |  | $ | 2,048,364 |  | $ | 4,064,345 |  | $ | 2,025,563 |  | $ | 2,082,238 |  | $ | 4,107,801 |
Nonperforming |  |  | 21,181 |  |  | 12,641 |  |  | 33,822 |  |  | 23,961 |  |  | 11,227 |  |  | 35,188 |
Total |  | $ | 2,037,162 |  | $ | 2,061,005 |  | $ | 4,098,167 |  | $ | 2,049,524 |  | $ | 2,093,465 |  | $ | 4,142,989 |

﻿

﻿

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 have heightened risk factors that warrant additional monitoring; however, these risk factors have not manifested themselves as potential weaknesses. The “Watch” grade should be regarded as a transition category.

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

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

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Notes to Consolidated Financial Statements

(Unaudited)

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

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

Residential and Consumer:

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

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

Purchased credit impaired loans and the related FDIC loss share receivable

﻿

Loans purchased in the 2009 acquisition of Peoples First Community Bank (“Peoples First”) were covered by two loss share agreements between the FDIC and the Company. The loss share agreement covering the non-single family portfolio expired in December 2014 and is now in a three year recovery period where 80% of recoveries on reimbursed losses are shared with the FDIC. The loss share agreement covering the single family portfolio expires in December 2019. As of September 30, 2016 and September 30, 2015, loans totaling $152.3 million and $177.5 million, respectively, were covered by the single family loss share agreement.

﻿

The receivable arising from the loss share agreements (referred to as the “FDIC loss share receivable” on our consolidated statements of financial condition) is measured separately from the covered loans because the agreements are not contractually part of the loans and are not transferable should the Company choose to dispose of the loans.

The following schedule shows activity in the loss share receivable for the nine months ended September 30, 2016 and 201 5.

﻿

﻿

﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | Nine Months Ended
﻿ |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2015
Beginning Balance |  | $ | 29,868 |  | $ | 60,272
Amortization |  |  | (4,678) |  |  | (4,034)
Charge-offs, write-downs and other recoveries |  |  | (5,569) |  |  | (6,733)
External expenses qualifying under loss share agreement |  |  | 1,000 |  |  | 1,035
Changes due to changes in cash flow projections |  |  | (3,027) |  |  | (1,984)
FDIC resolution of denied claims |  |  | — |  |  | (1,854)
Net payments to (from) FDIC |  |  | 436 |  |  | (14,667)
Ending balance |  | $ | 18,030 |  | $ | 32,035

﻿

﻿

Changes in the carrying amount of purchased credit impaired loans and related accretable yield are presented in the following table for

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Notes to Consolidated Financial Statements

(Unaudited)

the nine months ended September 30, 2016 and the year ended December 31, 2015.

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016 |  | December 31, 2015
﻿ |  | Carrying |  |  |  |  | Carrying |  |  |
﻿ |  | Amount |  | Accretable |  |  | Amount |  | Accretable |
(in thousands) |  | of Loans |  | Yield |  |  | of Loans |  | Yield |
Balance at beginning of period |  | $ | 225,838 |  | $ | 129,488 |  |  | $ | 313,685 |  | $ | 187,456 |
Payments received, net |  |  | (39,446) |  |  | (7,575) |  |  |  | (115,847) |  |  | (21,978) |
Accretion |  |  | 15,400 |  |  | (15,400) |  |  |  | 28,000 |  |  | (28,000) |
Increase (decrease) in expected cash flows based on actual cash flows and changes in cash flow assumptions |  |  | — |  |  | 5,352 |  |  |  | — |  |  | (4,238) |
Net transfers to (from) nonaccretable difference to accretable yield |  |  | — |  |  | 10,675 |  |  |  | — |  |  | (3,752) |
Balance at end of period |  | $ | 201,792 |  | $ | 122,540 |  |  | $ | 225,838 |  | $ | 129,488 |

﻿

﻿

﻿

Residential Mortgage Loans in Process of Foreclosure

﻿

Included in loans are $9.2 million and $7.4 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of September 30, 2016 and December 31, 2015, respectively. Of these loans, $2.8 million and $4.1 million, respectively, are covered by the FDIC loss share agreement. Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. In addition to the single family residential real estate loans in process of foreclosure, the Company also held $4.5 million and $9.3 million of foreclosed single family residential properties in other real estate owned as of September 30, 2016 and December 31, 2015, respectively. Of these foreclosed properties, $0.9 million and $1.6 million as of September 30, 2016 and December 31, 2015, respectively, are also covered by the FDIC loss share agreement.

﻿

4. Securities Sold under Agreements to Repurchase

Included in short-term borrowings at September 30, 2016 was $335.9 million of customer securities sold under agreements to repurchase (“repurchase agreements”) that mature daily and were secured by agency securities. The Company borrows funds on a secured basis by selling securities under agreements to repurchase, mai nly in connection with treasury management services offered to its deposit customers. As the Company maintains effective control over assets sold under agreements to repurchase, the securities continue to be carried on the consolidated statements of financial condition. Because the Company acts as borrower transferring assets to the counterparty, and the agreements mature d aily, the Company’s risk is limited.

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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Long-Term Debt

﻿

Effective January 1, 2016, the Company retrospectively adopted accounting guidance intended to simplify the presentation of debt issuance costs by requiring that costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Historically, debt issuance costs were reported in the “Other Assets” line items in the Consolidated Balance Sheets and Statements of Cash Flows. All historical periods have been restated to reflect the revised presentation and new required disclosures are reflected below. The adoption of this guidance did not have a material impact on the Company’s financial condition or operating results.

Long-term debt consisted of the following.

﻿

﻿

﻿ |  |  |  |  |  |
﻿ |  |  | September 30, |  |  | December 31,
(in thousands) |  |  | 2016 |  |  | 2015
Subordinated notes payable, maturing June 2045 |  | $ | 150,000 |  | $ | 150,000
Subordinated notes payable, maturing April 2017 |  |  | 95,511 |  |  | 98,011
Term note payable, maturing December 2018 |  |  | 111,575 |  |  | 125,000
Other long-term debt |  |  | 112,266 |  |  | 122,988
Less unamortized debt issuance costs |  |  | (5,642) |  |  | (5,854)
Total long-term debt less unamortized debt issuance costs |  | $ | 463,710 |  | $ | 490,145

﻿

Long-term debt with its related unamortized debt issuance cost at September 30, 2016 is p resented in the following table.

﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  | Unamortized
﻿ |  |  |  |  |  | Debt
﻿ |  |  |  |  |  | Issuance
(in thousands) |  |  | Principal |  |  | Costs
Subordinated notes payable, maturing June 2045 |  | $ | 150,000 |  | $ | 5,000
Subordinated notes payable, maturing April 2017 |  |  | 95,511 |  |  | -
Term note payable, maturing December 2018 |  |  | 111,575 |  |  | 642
Other long-term debt |  |  | 112,266 |  |  | -
Total |  | $ | 469,352 |  |  | 5,642

﻿

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Notes to Consolidated Financial Statements

(Unaudited)

6. Derivatives

Risk Management Objective of Using Derivatives

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

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2016 and December 31, 2015.

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  | Fair Values (1)
﻿ |  |  |  | Notional Amounts |  | Assets |  | Liabilities
﻿ |  | Type of |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31,
(in thousands) |  | Hedge |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Cash Flow |  | $ | 1,100,000 |  | $ | 500,000 |  | $ | 1,135 |  | $ | — |  | $ | 254 |  | $ | 281
﻿ |  |  |  | $ | 1,100,000 |  | $ | 500,000 |  | $ | 1,135 |  | $ | — |  | $ | 254 |  | $ | 281
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps (2) |  | N/A |  | $ | 905,662 |  | $ | 780,871 |  | $ | 33,732 |  | $ | 20,622 |  | $ | 35,447 |  | $ | 21,007
Risk participation agreements |  | N/A |  |  | 86,839 |  |  | 83,430 |  |  | 97 |  |  | 83 |  |  | 215 |  |  | 162
Forward commitments to sell residential mortgage loans |  | N/A |  |  | 102,495 |  |  | 55,128 |  |  | 88 |  |  | 263 |  |  | 997 |  |  | 336
Interest rate-lock commitments on residential mortgage loans |  | N/A |  |  | 60,757 |  |  | 38,853 |  |  | 532 |  |  | 243 |  |  | 33 |  |  | 167
Foreign exchange forward contracts |  | N/A |  |  | 29,700 |  |  | 44,068 |  |  | 970 |  |  | 2,040 |  |  | 953 |  |  | 2,015
﻿ |  |  |  | $ | 1,185,453 |  | $ | 1,002,350 |  | $ | 35,419 |  | $ | 23,251 |  | $ | 37,645 |  | $ | 23,687

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

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

﻿

Cash Flow Hedges of Interest Rate Risk

The Company is party to eight interest rate swap agreements designated and qualify ing as cash flow hedges of the Company’s forec asted variable cash flows for pool s of variable rate loans. For each agreement, the Company receives interest at a fixed rate and p ays at a variable rate. The eight swap agreements expire as follows: notional amount of $300 million expires in January 2017; n otional amount of $200 million expires in June 2017; three contracts each with notional amounts of $100 million expire in April 2018, 2019, 2020; and three contracts each with notional amounts of $100 million expire in September 2018, 2019, 2020.

During the terms of the swap agreements, the effective portion of changes in the fair value of the derivative instruments are recorded in Accumulated Other Comprehensive Income (“AOCI”) and subsequently reclassified into earnings in the periods that the hedged forecasted variabl e-rate interest payments affect earnings. The impact on AOCI is reflected in Note 7. There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings.

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions. Because the interest rate derivatives associated with this program do not meet hedge

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Notes to Consolidated Financial Statements

(Unaudited)

accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Risk participation agreements

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

Mortgage banking derivatives

The Bank also enters into certain deri vative agreements as part of their 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 ban king customers to facilitate their risk management strategies. The Bank manages its risk exposure from such transactions by entering into offsetting agreements with unrelated financial institutions. Because the foreign exchange forward contract derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Effect of Derivative Instruments on the Income Statement

Derivative income consisting primarily of customer interest rate swap fees, net of fair value adjustments, is reflected in the income statement in other noninterest income, totaling $1.7 million and $1.5 million for the nine months ended September 30, 2016 and 2015, respectively. The impact to interest income from cash flow hedges was $1.7 million and $1.5 million for the nine months ended September 30, 2016 and 2015, respectively.

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, 2016, the aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position was $36.3 million, for which the Bank had posted collateral of $37.5 million.

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Notes to Consolidated Financial Statements

(Unaudited)

Offsetting Assets and Liabilities

The Bank’s derivative instruments to certain counterparties contain legally enforceable netting provisions that allow for net settlement of multiple transactions to a single amount, which may be positive, negative, or zero. Offsetting information in regards to derivative assets and liabilities subject to these master netting agreements at September 30, 2016 and Decemb er 31, 2015 is presented in the following tables.

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  |  |  |  | Gross Amounts Offset in |  | Net Amounts Presented in |  | Gross Amounts Not Offset in the Statement of Financial Position
Description |  | Gross Amounts Recognized |  | the Statement of Financial Position |  | the Statement of Financial Position |  | Financial Instruments |  | Cash Collateral |  | Net Amount
As of September 30, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets |  | $ | 1,352 |  | $ | — |  | $ | 1,352 |  | $ | 1,352 |  | $ | — |  | $ | —
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Liabilities |  | $ | 36,267 |  | $ | — |  | $ | 36,267 |  | $ | 1,352 |  | $ | 37,451 |  | $ | (2,536)

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  |  |  |  | Gross Amounts Offset in |  | Net Amounts Presented in |  | Gross Amounts Not Offset in the Statement of Financial Position
Description |  | Gross Amounts Recognized |  | the Statement of Financial Position |  | the Statement of Financial Position |  | Financial Instruments |  | Cash Collateral |  | Net Amount
As of December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets |  | $ | 224 |  | $ | — |  | $ | 224 |  | $ | 224 |  | $ | — |  | $ | —
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Liabilities |  | $ | 21,034 |  | $ | — |  | $ | 21,034 |  | $ | 224 |  | $ | 23,482 |  | $ | (2,672)

﻿

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

﻿

7. Stockholders’ Equity

Stock Repurchase Program

On August 28, 2015, the Company’s Board of D irectors approved a stock repurchase plan that authorized the repurchase of up to 5%, or approximately 3.9 million shares of its outstanding common stock. The approved plan allowed the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company from time to time unt il it expired on September 30, 2016. Under this plan, the Company repurchased 741,393 shares of its common stock at an average price of $27.44 per share through September 30, 2016. There were no shares of common stock repurchased under this plan in 2016.

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.

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Notes to Consolidated Financial Statements

(Unaudited)

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Available |  | HTM Securities |  |  |  | Loss on |  |  |
﻿ |  | for Sale |  | Transferred |  | Employee |  | Effective Cash |  |  |
(in thousands) |  | Securities |  | from AFS |  | Benefit Plans |  | Flow Hedges |  | Total
Balance, December 31, 2014 |  | $ | 18,001 |  | $ | (19,074) |  | $ | (48,626) |  | $ | (375) |  | $ | (50,074)
Other comprehensive income before income taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in unrealized gain |  |  | 163 |  |  | — |  |  | — |  |  | 2,011 |  |  | 2,174
Reclassification of net (gain) losses realized and included in earnings |  |  | (165) |  |  | — |  |  | 2,373 |  |  | — |  |  | 2,208
Valuation adjustment for employee benefit plans |  |  | — |  |  | — |  |  | (959) |  |  | — |  |  | (959)
Amortization of unrealized net loss on securities transferred to HTM |  |  | — |  |  | 2,609 |  |  | — |  |  | — |  |  | 2,609
Income tax (benefit) expense |  |  | (73) |  |  | 953 |  |  | 513 |  |  | 732 |  |  | 2,125
Balance, September 30, 2015 |  | $ | 18,072 |  | $ | (17,418) |  | $ | (47,725) |  | $ | 904 |  | $ | (46,167)
Balance, December 31, 2015 |  | $ | 4,268 |  | $ | (16,795) |  | $ | (67,890) |  | $ | (178) |  | $ | (80,595)
Other comprehensive income before income taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in unrealized gain |  |  | 38,835 |  |  | — |  |  | — |  |  | 1,162 |  |  | 39,997
Reclassification of net (gain) losses realized and included in earnings |  |  | (1,435) |  |  | — |  |  | 4,395 |  |  | — |  |  | 2,960
Valuation adjustment for employee benefit plans |  |  | — |  |  | — |  |  | (6,347) |  |  |  |  |  | (6,347)
Amortization of unrealized net loss on securities transferred to HTM |  |  | — |  |  | 2,736 |  |  | — |  |  | — |  |  | 2,736
Income tax expense (benefit) |  |  | 13,701 |  |  | 1,029 |  |  | (714) |  |  | 424 |  |  | 14,440
Balance, September 30, 2016 |  | $ | 27,967 |  | $ | (15,088) |  | $ | (69,128) |  | $ | 560 |  | $ | (55,689)

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

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﻿ |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |
﻿ |  | Nine Months Ended |  |
Amount reclassified from AOCI (a) |  | September 30, |  | Affected line item on
(in thousands) |  |  | 2016 |  |  | 2015 |  | the income statement
Gain on sale of AFS securities |  | $ | 1,435 |  | $ | 165 |  | Securities transactions
Tax effect |  |  | (502) |  |  | (58) |  | Income taxes
Net of tax |  |  | 933 |  |  | 107 |  | Net income
Amortization of unrealized net loss on securities transferred to HTM |  |  | (2,736) |  |  | (2,609) |  | Interest income
Tax effect |  |  | 1,029 |  |  | 953 |  | Income taxes
Net of tax |  |  | (1,707) |  |  | (1,656) |  | Net income
Amortization of defined benefit pension and post-retirement items |  |  | (4,395) |  |  | (2,373) |  | Employee benefits expense (b)
Tax effect |  |  | 1,538 |  |  | 831 |  | Income taxes
Net of tax |  |  | (2,857) |  |  | (1,542) |  | Net income
Total reclassifications, net of tax |  | $ | (3,631) |  | $ | (3,091) |  | Net income

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

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

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Notes to Consolidated Financial Statements

(Unaudited)

8. Other Noninterest Income

Components of other noninterest income are as follows.

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﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, |  | September 30,
﻿ |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Income from bank-owned life insurance |  | $ | 4,097 |  | $ | 2,451 |  | $ | 11,148 |  | $ | 7,788
Credit related fees |  |  | 2,685 |  |  | 2,718 |  |  | 7,309 |  |  | 7,786
Derivative income |  |  | 1,347 |  |  | 74 |  |  | 1,741 |  |  | 1,486
Net gain on sale of assets |  |  | 991 |  |  | 418 |  |  | 4,557 |  |  | 363
Safety deposit box income |  |  | 424 |  |  | 441 |  |  | 1,315 |  |  | 1,356
Other miscellaneous |  |  | 2,322 |  |  | 2,268 |  |  | 6,698 |  |  | 7,360
Total other noninterest income |  | $ | 11,866 |  | $ | 8,370 |  | $ | 32,768 |  | $ | 26,139

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﻿

﻿

9. Other Noninterest Expense

Components of other noninterest expense are as follows.

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Advertising |  | $ | 2,859 |  | $ | 2,856 |  | $ | 7,909 |  | $ | 7,154
Ad valorem and franchise taxes |  |  | 2,268 |  |  | 2,868 |  |  | 6,911 |  |  | 8,319
Printing and supplies |  |  | 1,134 |  |  | 1,193 |  |  | 3,310 |  |  | 3,568
Insurance expense |  |  | 803 |  |  | 794 |  |  | 2,467 |  |  | 2,644
Travel expense |  |  | 1,022 |  |  | 1,419 |  |  | 3,050 |  |  | 3,946
Entertainment and contributions |  |  | 1,686 |  |  | 1,634 |  |  | 5,319 |  |  | 5,009
Tax credit investment amortization |  |  | 861 |  |  | 2,161 |  |  | 4,437 |  |  | 6,352
Other miscellaneous |  |  | 11,746 |  |  | 3,634 |  |  | 22,158 |  |  | 16,679
Total other noninterest expense |  | $ | 22,379 |  | $ | 16,559 |  | $ | 55,561 |  | $ | 53,671

﻿

10. 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.

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Notes to Consolidated Financial Statements

(Unaudited)

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

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | September 30,
(in thousands, except per share data) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Numerator: |  |  |  |  |  |  |  |  |  |  |  |
Net income to common shareholders |  | $ | 46,719 |  | $ | 41,166 |  | $ | 97,465 |  | $ | 116,154
Net income allocated to participating securities - basic and diluted |  |  | 1,101 |  |  | 840 |  |  | 2,334 |  |  | 2,541
Net income allocated to common shareholders - basic and diluted |  | $ | 45,618 |  | $ | 40,326 |  | $ | 95,131 |  | $ | 113,613
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average common shares - basic |  | $ | 77,550 |  | $ | 77,928 |  | $ | 77,525 |  | $ | 78,452
Dilutive potential common shares |  |  | 127 |  |  | 147 |  |  | 128 |  |  | 157
Weighted-average common shares - diluted |  | $ | 77,677 |  | $ | 78,075 |  | $ | 77,653 |  | $ | 78,609
Earnings per common share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.59 |  | $ | 0.52 |  | $ | 1.23 |  | $ | 1.45
Diluted |  | $ | 0.59 |  | $ | 0.52 |  | $ | 1.23 |  | $ | 1.45

﻿

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 317,893 and 761,113, respectively, for the three months ended September 30, 2016 and September 30, 2015. Weighted-average anti-dilutive potential common shares totaled 578,863 and 815,765, respectively, for the nine months ended September 30, 2016 and September 30, 2015.

11. Retirement Plans

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

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

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

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  | Other Post-
(in thousands) |  | Pension Benefits |  | retirement Benefits
﻿ |  |  |  |  |  |  |  |  |  |  |  |
Three Months Ended September 30, 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Service cost |  | $ | 3,611 |  | $ | 3,383 |  | $ | 45 |  | $ | 23
Interest cost |  |  | 4,022 |  |  | 4,672 |  |  | 204 |  |  | 174
Expected return on plan assets |  |  | (8,554) |  |  | (8,207) |  |  | — |  |  | —
Amortization of net loss |  |  | 1,426 |  |  | 842 |  |  | 53 |  |  | (40)
Net periodic benefit cost |  | $ | 505 |  | $ | 690 |  | $ | 302 |  | $ | 157
﻿ |  |  |  |  |  |  |  |  |  |  |  |
Nine Months Ended September 30, 2016 |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 10,487 |  | $ | 10,128 |  | $ | 119 |  | $ | 95
Interest cost |  |  | 13,033 |  |  | 13,963 |  |  | 613 |  |  | 717
Expected return on plan assets |  |  | (25,999) |  |  | (24,626) |  |  | — |  |  | —
Amortization of net loss |  |  | 4,320 |  |  | 2,328 |  |  | 75 |  |  | 45
Net periodic benefit cost |  | $ | 1,841 |  | $ | 1,793 |  | $ | 807 |  | $ | 857

﻿

﻿

No contribution is required in 2016 to meet minimum funding requirements, and the Company has no plans to make a contribution in the current year.

25

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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

12. 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 16 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

A summary of option activity for the nine months ended September 30, 201 6 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, 2016 |  | 745,806 |  | $ | 37.55 |  |  |  |  |
Exercised/Released |  | (1,660) |  |  | 29.73 |  |  |  |  |
Cancelled/Forfeited |  | (66,345) |  |  | 35.25 |  |  |  |  |
Expired |  | (150,847) |  |  | 46.06 |  |  |  |  |
Outstanding at September 30, 2016 |  | 526,954 |  | $ | 35.42 |  | 3.81 |  | $ | 582
Exercisable at September 30, 2016 |  | 483,199 |  | $ | 35.93 |  | 3.67 |  | $ | 469

﻿

The total intrins ic value of options exercised for the nine months ended September 30, 2016 was minimal, compared to $0.2 million for the nine months ended September 30, 2015.

The restricted and performance shares in the table below are subject to service requirements. A summary of the status of the Company’s nonvested restricted and performance shares as of September 30, 2016 and changes during the nine months ended September 30, 2016, is presented in the following table.

﻿ |  |  |  |  |
﻿ |  |  |  |  |
﻿ |  |  |  |  | Weighted
﻿ |  |  |  |  | Average
﻿ |  | Number of |  |  | Grant Date
﻿ |  | Shares |  |  | Fair Value
Nonvested at January 1, 2016 |  | 2,196,145 |  | $ | 30.97
Granted |  | 106,403 |  |  | 25.15
Vested |  | (71,184) |  |  | 30.98
Forfeited |  | (207,932) |  |  | 30.92
Nonvested at September 30, 2016 |  | 2,023,432 |  | $ | 30.63

﻿

As of September 30, 2016, there were $33.6 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, 2016 and 2015 was $2.2 million and $7.6 million, respectively.

During the nine months ended September 30, 2016, the Company granted 35,587 performance shares subject to a total shareholder return (“TSR”) performance metric with a grant date fair value of $24.42 per share and 35,587 performance shares subject to a core earnings per share performance metric with a grant date fair value of $22.58 per share to key members of executive management. The number of performance shares subject to TSR that ultimately vest at the end of the three-year performance period, if any, will be based on the relative rank of the Company’s three-year TSR among the TSRs of a peer group of 44 regional banks. The fair value of the performance shares subject to TSR at the grant date was determined using a Monte Carlo simulation method. The number of performance shares subject to core earnings per share that ultimately vest will be based on the Company’s attainment of certain core earnings per share goals over the two-year performance period. The maximum number of performance shares that could vest is 200% of the target award. Compensation expense for these performance shares is recognized on a straight-line basis over the three-year service period.

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Notes to Consolidated Financial Statements

(Unaudited)

13. Fair Value

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

Fair Value of Assets and Liabilities Measured on a Recurring Basis

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

﻿

﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016
(in thousands) |  | Level 1 |  | Level 2 |  | Total
Assets |  |  |  |  |  |  |  |  |
Available for sale debt securities: |  |  |  |  |  |  |  |  |
U.S. Treasury and government agency securities |  | $ | — |  | $ | 20,671 |  | $ | 20,671
Municipal obligations |  |  | — |  |  | 217,018 |  |  | 217,018
Corporate debt securities |  |  | — |  |  | 3,500 |  |  | 3,500
Residential mortgage-backed securities |  |  | — |  |  | 1,775,925 |  |  | 1,775,925
Commercial mortgage-backed securities |  |  | — |  |  | 173,109 |  |  | 173,109
Collateralized mortgage obligations |  |  | — |  |  | 223,256 |  |  | 223,256
Equity securities |  |  | 1,201 |  |  | — |  |  | 1,201
Total available for sale securities |  |  | 1,201 |  |  | 2,413,479 |  |  | 2,414,680
Derivative assets (1) |  |  | — |  |  | 36,554 |  |  | 36,554
Total recurring fair value measurements - assets |  | $ | 1,201 |  | $ | 2,450,033 |  | $ | 2,451,234
Liabilities |  |  |  |  |  |  |  |  |
Derivative liabilities (1) |  | $ | — |  | $ | 37,899 |  | $ | 37,899
Total recurring fair value measurements - liabilities |  | $ | — |  | $ | 37,899 |  | $ | 37,899

﻿

| (1) |  | For further disaggregation of derivative assets and liabilities, see Note 6 - Derivatives.

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | December 31, 2015
(in thousands) |  | Level 1 |  | Level 2 |  | Total
Assets |  |  |  |  |  |  |  |  |
Available for sale debt securities: |  |  |  |  |  |  |  |  |
U.S. Treasury and government agency securities |  | $ | — |  | $ | 134 |  | $ | 134
Municipal obligations |  |  | — |  |  | 39,607 |  |  | 39,607
Corporate debt securities |  |  | — |  |  | 3,500 |  |  | 3,500
Residential mortgage-backed securities |  |  | — |  |  | 1,758,373 |  |  | 1,758,373
Collateralized mortgage obligations |  |  | — |  |  | 289,033 |  |  | 289,033
Equity securities |  |  | 2,757 |  |  | — |  |  | 2,757
Total available for sale securities |  |  | 2,757 |  |  | 2,090,647 |  |  | 2,093,404
Derivative assets (1) |  |  | — |  |  | 23,251 |  |  | 23,251
Total recurring fair value measurements - assets |  | $ | 2,757 |  | $ | 2,113,898 |  | $ | 2,116,655
Liabilities |  |  |  |  |  |  |  |  |
Derivative liabilities (1) |  | $ | — |  | $ | 23,968 |  | $ | 23,968
Total recurring fair value measurements - liabilities |  | $ | — |  | $ | 23,968 |  | $ | 23,968

﻿

| (1) |  | For further disaggregation of derivative assets and liabilities, see Note 6 - Derivatives.

﻿

Securities classified as level 1 within the valuation hierarchy include equity securities with fair value measurements obtained from quoted market prices on an active market. Level 2 classified securities include obligations of U.S. Government agencies and U.S.

27

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Notes to Consolidated Financial Statements

(Unaudited)

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

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

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

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

Fair Value of Assets Measured on a Nonrecurring Basis

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

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

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

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

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016
(in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Collateral-dependent impaired loans |  | $ | — |  | $ | 126,401 |  | $ | — |  | $ | 126,401
Other real estate owned |  |  | — |  |  | — |  |  | 14,626 |  |  | 14,626
Total nonrecurring fair value measurements |  | $ | — |  | $ | 126,401 |  | $ | 14,626 |  | $ | 141,027

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | December 31, 2015
(in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Collateral-dependent impaired loans |  | $ | — |  | $ | 93,602 |  | $ | — |  | $ | 93,602
Other real estate owned |  |  | — |  |  | — |  |  | 17,206 |  |  | 17,206
Total nonrecurring fair value measurements |  | $ | — |  | $ | 93,602 |  | $ | 17,206 |  | $ | 110,808

﻿

28

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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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 i nstruments are discussed below.

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

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

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

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

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

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

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

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

The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amount at September 30, 2016 and December 31, 2015.

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016
﻿ |  |  |  |  |  |  |  |  |  |  | Total Fair |  | Carrying
(in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Value |  | Amount
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, interest-bearing bank deposits, and federal funds sold |  | $ | 458,792 |  | $ | — |  | $ | — |  | $ | 458,792 |  | $ | 458,792
Available for sale securities |  |  | 1,201 |  |  | 2,413,479 |  |  | — |  |  | 2,414,680 |  |  | 2,414,680
Held to maturity securities |  |  | — |  |  | 2,482,540 |  |  | — |  |  | 2,482,540 |  |  | 2,428,432
Loans, net |  |  | — |  |  | 126,401 |  |  | 15,926,313 |  |  | 16,052,714 |  |  | 15,834,760
Loans held for sale |  |  | — |  |  | 42,545 |  |  | — |  |  | 42,545 |  |  | 42,545
Derivative financial instruments |  |  | — |  |  | 36,554 |  |  | — |  |  | 36,554 |  |  | 36,554
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | — |  | $ | — |  | $ | 18,885,148 |  | $ | 18,885,148 |  | $ | 18,885,477
Federal funds purchased |  |  | 1,250 |  |  | — |  |  | — |  |  | 1,250 |  |  | 1,250
Securities sold under agreements to repurchase |  |  | 335,894 |  |  | — |  |  | — |  |  | 335,894 |  |  | 335,894
FHLB borrowings |  |  | 738,812 |  |  | — |  |  | — |  |  | 738,812 |  |  | 738,812
Long-term debt |  |  | — |  |  | 468,091 |  |  | — |  |  | 468,091 |  |  | 463,710
Derivative financial instruments |  |  | — |  |  | 37,899 |  |  | — |  |  | 37,899 |  |  | 37,899

﻿

﻿

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Notes to Consolidated Financial Statements

(Unaudited)

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | December 31, 2015
﻿ |  |  |  |  |  |  |  |  |  |  | Total Fair |  | Carrying
(in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Value |  | Amount
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, interest-bearing bank deposits, and federal funds sold |  | $ | 869,429 |  | $ | — |  | $ | — |  | $ | 869,429 |  | $ | 869,429
Available for sale securities |  |  | 2,757 |  |  | 2,090,647 |  |  | — |  |  | 2,093,404 |  |  | 2,093,404
Held to maturity securities |  |  | — |  |  | 2,375,851 |  |  | — |  |  | 2,375,851 |  |  | 2,370,388
Loans, net |  |  | — |  |  | 93,602 |  |  | 15,334,201 |  |  | 15,427,803 |  |  | 15,522,135
Loans held for sale |  |  | — |  |  | 20,434 |  |  | — |  |  | 20,434 |  |  | 20,434
Derivative financial instruments |  |  | — |  |  | 23,251 |  |  | — |  |  | 23,251 |  |  | 23,251
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | — |  | $ | — |  | $ | 18,327,425 |  | $ | 18,327,425 |  | $ | 18,348,912
Federal funds purchased |  |  | 10,100 |  |  | — |  |  | — |  |  | 10,100 |  |  | 10,100
Securities sold under agreements to repurchase |  |  | 513,544 |  |  | — |  |  | — |  |  | 513,544 |  |  | 513,544
FHLB borrowings |  |  | 900,000 |  |  | — |  |  | — |  |  | 900,000 |  |  | 900,000
Long-term debt |  |  | — |  |  | 488,711 |  |  | — |  |  | 488,711 |  |  | 490,145
Derivative financial instruments |  |  | — |  |  | 23,968 |  |  | — |  |  | 23,968 |  |  | 23,968

﻿

﻿

﻿

14. Recent Accounting Pronouncements

﻿

Accounting Standards Adopted in 2016

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation Analysis” that changed the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this ASU (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update were effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company performed the consolidation analysis using the new guidelines effective as of January 1, 2016. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

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In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in this ASU does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Therefore, the FASB issued ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting)” to clarify the SEC staff position that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted ASU 2015-03 and ASU 2015-15 on the first day of 2016 as required by the guidance and applied it retrospectively to the first day of 2012. Our adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations. We retrospectively adjusted the balance sheet, statement of cash flows, long-term debt note and selected financial data. The effect of the change on the financial statement line items of Other Assets and Long-term Debt was immaterial (See Note 5).

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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In April 2015, the FASB issued ASU 2015-05, Subtopic 350-40 “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” that provides guidance to customers about how to account for a cloud computing arrangement depending on whether or not it includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance did not change GAAP for a customer’s accounting for service contracts. For public business entities, the amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company elected to adopt this guidance prospectively to all arrangements entered into or materially modified on or after the first day of 2016, as required by the guidance. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” that removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company early adopted this guidance with the issuance of its benefit plan financials and it did not have a material impact on the Company’s financial condition or results of operations.

In September 2015, the FASB issued ASU 2015-16 “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

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Issued but Not Yet Adopted Accounting Standards

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In August 2016, the FASB issued ASU 2016-15, “Statement of Cash flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on eight specific cash flow issues, including debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned), life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. The Company is currently assessing this pronouncement and the impact of adoption.

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In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credits Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU, more commonly referred to as Current Expected Credit Losses, or CECL, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently assessing this pronouncement and the impact of adoption.

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In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” to improve the accounting for employee share-based payments. Several aspects of the accounting for share-

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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

based payment award transactions are simplified, including income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is currently assessing this pronouncement and the impact of adoption.

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In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” that provides new lease accounting guidance. Under the guidance, lessees (with the exception of short-term leases) will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged. Lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing this pronouncement and the impact of adoption.

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In January 2016, the FASB issued an ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” that improves the recognition and measurement of financial instruments through targeted changes to existing GAAP. It requires equity investments (except those that are accounted for under the equity method of accounting or result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It also requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently assessing this pronouncement, however, 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 ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” 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. Most revenue associated with financial instruments, including interest and loan origination fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are also excluded from the scope. Subsequent to issuance of the revenue recognition guidance, the FASB has issued several updates that deferred by one year the effective date for revenue recognition guidance; clarified its guidance for performing the principal-versus-agent analysis; clarified guidance for identifying performance obligations allowing entities to ignore immaterial promised goods and services in the context of a contract with a customer and other clarifying guidance. Entities can elect to adopt the guidance either on a full or modified retrospective basis. Full retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the earliest comparative period presented. Modified retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The standard will be effective for the Company for annual reporting periods beginning after Dece mber 15, 2017. The Company does not plan to early adopt the guidance. The Company is in the process of evaluating the transition method election and the impact of the guidance to noninterest income and on presentation and disclosures. This guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

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

OVERVIEW

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This discussion includes non-GAAP financial measures to describe Hancock’s performance. An overview of the non-GAAP measures used and the reasons why management believes they are useful and important in understanding the Company’s financial condition and results of operations is included in the “Critical Accounting Policies and Estimates” section below. The reconciliations of those measures to GAAP measures are provided in the appropriate sections within this Item.

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Recent Economic and Industry Developments

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Energy Industry Impact

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WTI Crude Oil prices were generally stable during the third quarter of 2016 trading mostly in the $40 to $50 per barrel range after trading as low as $26 per barrel during the first quarter of 2016. The September 30, 2016 closing price of approximately $48 per barrel was virtually flat with June 30, 2016, but still down approximately 54% from July 2014. Like WTI Crude Oil prices, natural gas prices continued to improve during the third quarter after trading at relatively depressed levels during the past 24 months. The stabilization of energy prices during the past two quarters has led to an increase in U.S. drilling activity. At September 30, 2016, industry monitor Baker Hughes reported 522 active rigs, up 100, or 24%, from June 30, 2016, but still almost 75% below the September 30, 2014 total of 1,931. This downturn in crude oil and natural gas prices and resulting drilling activity over the past two years has had a substantial negative effect on a large number of energy-related companies, including a number of the Company’s customers, impacting our recent financial performance and credit metrics. Even with improving oil prices and recent increase in drilling activity, management expects a lag in the recovery of energy service and support credits. This is reflected by an increase in criticized energy loans at September 30, 2016, where the majority of risk downgrades were in non-drilling support credits. Our expectation is that reserve-based lending credits will show signs of improvement first, followed by land-based services, and finally non-drilling services in the Gulf of Mexico where our customers operate.

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At September 30, 2016, the Company’s loans to energy-related customers totaled approximately $1.4 billion, or 9% of its total loan portfolio. Total criticized loans in the energy portfolio increased approximately $95 million from June 30, 2016 to $893 million, or approximately 64% of the total energy portfolio. Criticized loans are defined as those which are risk rated special mention, substandard or doubtful, and include both accruing and nonaccrual loans. The linked-quarter increase in criticized l oans is mainly related to an $86 million increase in the energy support sector of our overall energy portfolio. Nonperforming energy loans totaled $199 million, up approximately $2 million from June 30, 2016. Despite the increase in criticized loans, energy loans past due 30 days or more, including both performing and nonaccrual loans, decreased $24 million, or 30%, from June 30, 2016 to $56 million at September 30, 2016. The recent increase in energy prices has benefited the upstream sector more than the support sector and management expects a lag on the turnaround timing for the support sector which could result in continued downgrades and an increase in nonperforming loans. The allowance for the energy p ortfolio increased to $118 million from $111 million at June 30, 2016, and now totals 8.5% of the energy portfolio, up from 7.5% at June 30, 2016. At September 30, 2 016, the Company’s total allowance for loan losses was $236 million compared to $181 million at December 31, 2015.

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Management continues to work with our energy-related customers to weather this difficult cycle. W e continue to make prudently underwritten loans to qualified energy-related companies, while reducing our overall concentration of energy-related credits by focus ing loan growth efforts on other specifically targeted areas. Energy-related loans decreased $81 million between June 30, 2016 and September 30, 2016. The linked-quarter net decrease in the energy portfolio included approximately $141 million in payoffs and paydowns and $5 million in charge-offs, partially offset by approximately $65 million in draws on existing lines. At September 30, 2016, the Company has approximately $692 million in unfunded commitments to its energy-related customers. The availability of these funds generally requires the borrower to meet credit standards, maintain collateral values established in the underlying contract and not be in violation of any other contractual conditions.

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The Company’s energy-related loan portfolio is diversified across a number of industries. It is comprised of loans to customers involved in both exploration and production and support services. Approximately $9 00 m illion, or 67%, of the energy portfolio is with customers who provide support services, including transportation, supply fabrication and other onshore and offshore services and products to exploration and production activities. The remaining $500 million, or 33%, is to customers engaged in oil and gas exploration and production, 90% of which is supported by proved developed producing reserves. These customers are diversified across 12 primary basins in the U.S. and the Gulf of Mexico and by product line with approximately 60% in oil and 40% in gas. Borrowing base redeterminations for reserve-based loans are completed twice a year. During the fourth quarter, these credits will be reviewed and adjustments made to overall commitment levels. Reserve-based lending commitments were reduced by approximately 20% on average in the spring redetermination cycle due to continued low commodity prices.

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Management continues to closely monitor the impact that the prolonged decrease in energy-related activity will have on the ability of the Company’s energy-related customers to service their debt. Part of the ongoing monitoring includes a review of customers’ balance

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sheets, leverage ratios, collateral values and other critical lending metrics. As new information becomes available, the Company could have additional risk rating downgrades. Management believes that if further risk rating downgrades occur, they could lead to additional loan loss provisions, a higher allowance for loan losses, and additional charge-offs. While management expects additional charge-offs in the portfolio, we continue to believe the impact of the energy cycle on the Company will be manageable and capital will remain solid. Management estimates that net charge-offs from energy-related credits could approximate $65 to $95 million over the duration of the cycle. During the third quarter of 2016, the Company recorded net charge-offs of approximately $5 million on energy-related credits. Since November 2014, the start of the current cycle, the Company has recorded approximately $30 million in net charge-offs on energy-related credits.

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Additionally, management is closely monitoring the impact the decreased level of drilling activity is having on the local economies in the Company’s energy-dependent markets, particularly as it relates to our consumer and commercial real estate portfolios. Although the Company has not experienced any significant issues in these portfolios, we could experience some credit degradation during th e remainder of 2016 and into the first half of 2017, particularly in the co nsumer portfolio, which may require an increase in our allowance for loan losses.

Current Economic Environment

Most of Hancock’s market area reflected a modest to moderate expansion in economic activity during the third quarter according to the Federal Reserve’s Summary of Commentary on Current Economic Conditions (“Beige Book”). However, energy-related businesses operating mainly in Hancock’s south Louisiana and Houston, Texas markets remained depressed despite an improvement in drilling business activity.

The real estate markets for residential properties reported slow and steady growth across the Company’s footprint outside of the Houston area during the third quarter. Sales of l ower-priced homes remained strong, but demand slowed for moderate and high-priced homes. Apartment demand was strong in all markets excluding Houston, where increasing supply put pressure on rent prices and occupancy levels. New home sales and construction activity are expected to remain flat or improve slightly over the next three months in all of our markets.

The commercial real estate market continued to improve in most of our footprint, with growing demand for office and industrial space in certain market areas. Commercial construction activity also increased in these sectors. Continued improvement is expected in the commercial real estate market. However, the Houston market is the exception to this positive outlook with an overabundance of availability as sublease space continued to spike.

The Beige Book reported both retail sales activity and consumer spending were mixed with merchants expecting sales to remain flat over the next several months. Auto sales declined throughout the Company’s footprint. Tourism and hospitality activity had increased since the summer and outlooks for the rest of the year remained positive. Wages and employment remained steady, while some firms experienced difficulty finding qualified workers to fill various job levels. Shortages of healthcare and construction workers persisted. Energy companies indicated that layoffs had subsided and they were trying to retain their remaining talent.

Loan demand across the geographic markets that Hancock serves were mixed, with some areas reporting strong loan activity, while others noted declines. Energy-related companies continued to report challenges in obtaining credit. Banking individuals surveyed in the October 19, 2016 Beige Book reported that consumer confidence and credit issues had improved since the September 7, 2016 B eige Book report. Individuals surveyed in the Beige Book remained cautiously optimistic with a more positive economic outlook than in the previous survey.

Highlights of Third Quarter 2016 Financial Results

Net income in the third quarter of 2016 was $46.7 million, or $0.59 per diluted common share, compared to $46.9 million, or $0.59 per diluted common share, in the second quarter of 2016. Net income was $41.2 million, or $0.52 per diluted common share, in the third quarter of 2015. Although linked-quarter earnings were stable, there were slight changes in the various components as a $1.8 million increase in the provision for loan losses was generally offset by lower operating expenses and a lower effective tax rate. The $5.6 million increase in third quarter 2016 net income compared to third quarter 2015 is mainly due to a $6.7 million increase in net interest income driven by a $1.8 billion increase in average earning assets, a $2.8 million increase in noninterest income from strategic initiatives implemented during 2015 and 2016, and a $2.1 million decrease in expense. An $8.9 million increase in the loan loss provision, mostly related to the energy portfolio, partially offset the revenue increase.

Net income for the nine months ended September 30, 2016 was $97.5 million, or $1.23 per diluted common share, compared to $116.2 million, or $1.45 per diluted common share, for the nine months ended September 30, 2015. The decrease was mainly due to a $73.4 million increase in provision for loan losses mostly related to the energy portfolio. This was partially offset by a $24.5 million increase in net interest income, a $7.3 million increase in noninterest income and a $7.6 million reduction in noninterest expense. Included in net income for the nine months ended September 30, 2016 and 2015 was the negative impact from nonoperating expenses totaling $5.0 million and $16.2 million, respectively.

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The total allowance for loan losses was $236.1 million at September 30, 2016, up $10.0 million from June 30, 2016 and $96.5 million from September 30, 2015. The ratio of the allowance for loan losses to period-end loans was 1.47% at September 30, 2016, up from 1.41% at June 30, 2016, and 0.95% at September 30, 2015. The increase in the allowance from September 30, 2015 is primarily attributable to the energy portfolio. The allowance for credits in the energy portfolio totaled $118.3 million, or 8.5% of energy loans, at September 30, 2016, up from $111.1 million, or 7.5% of energy loans, at June 30, 2016, and $35.2 million, or 2.1%, at September 30, 2015. The allowance maintained on the portion of the loan portfolio that was not purchased credit impaired (“PCI”) increased $9.9 million linked quarter, totaling $216.4 million, while the allowance on the PCI loan portfolio increased $0.1 million linked quarter.

During August of 2016, the Baton Rouge metropolitan area, one of the Company’s major markets, experienced historic and unprecedented flooding. Management does not expect the flooding to have a significant impact on the Company’s credit losses. However, the Company suffered significant damage to five of its locations. Operating expense in the third quarter of 2016 includes an accrual for $2.5 million, mainly representing the property and contents insurance deductible for the damaged locations.

Core pre-tax, pre-provision income, tax-equivalent (“te”) (“core PTPP”) was $86.0 million for the third quarter of 2016, compared to $85.2 million in the second quarter of 2016 and $70.4 million in the third quarter of 2015. Management believes core PTPP is a useful financial measure as it enables investors and others to assess the ability of the Company to generate capital to cover credit losses during a credit cycle. For the nine months ended September 30 2016, core PTPP i s up $48.6 million, or 24% compared to the same period in 2015. The Company has established as one of its 2016 strategic objectives a core PTPP of $323.4 million representing a 25% increase over 2014 core PTPP of $258.7 million. The Company believes it is on track to exceed our 2016 goal. Through September 30, 2016, core PTPP totaled $247.7 million, or 77% of our goal for 2016. The table below provides a reconciliation of the non-GAAP measure core PTPP to GAAP-related financial statement line items.

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﻿ |  | Three Months Ended |  |  | Nine Months Ended
﻿ |  | September 30, | June 30, | September 30, |  | September 30, | September 30,
(in millions) |  |  | 2016 |  | 2016 | 2015 |  | 2016 | 2015
Net interest income |  | $ | 163.5 |  | $ | 165.0 |  | $ | 156.8 |  |  | $ | 491.3 |  | $ | 466.8
Tax-equivalent (te) adjustment (a) |  |  | 6.8 |  |  | 6.2 |  |  | 3.3 |  |  |  | 18.3 |  |  | 9.4
Net interest income (te) (a) |  |  | 170.3 |  |  | 171.2 |  |  | 160.1 |  |  |  | 509.6 |  |  | 476.2
Noninterest income |  |  | 63.0 |  |  | 63.7 |  |  | 60.2 |  |  |  | 184.9 |  |  | 177.6
Purchase accounting adjustments - revenue |  |  | (3.1) |  |  | (3.8) |  |  | (4.7) |  |  |  | (10.8) |  |  | (25.5)
Core revenue (te) (a) |  |  | 230.2 |  |  | 231.1 |  |  | 215.6 |  |  |  | 683.7 |  |  | 628.3
Noninterest expense |  |  | (149.1) |  |  | (150.9) |  |  | (151.2) |  |  |  | (456.0) |  |  | (463.6)
Intangible amortization |  |  | 4.9 |  |  | 5.0 |  |  | 6.0 |  |  |  | 15.0 |  |  | 18.5
Nonoperating items |  |  | — |  |  | — |  |  | — |  |  |  | 5.0 |  |  | 15.9
Core pre-tax, pre-provision income (te) (a) |  | $ | 86.0 |  | $ | 85.2 |  | $ | 70.4 |  |  | $ | 247.7 |  | $ | 199.1

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

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RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the third quarter of 2016 was $170.3 million, virtually unchanged from the second quarter of 2016. Core n et interest income (te) was also virtually flat.

Net interest income (te) for the third quarter of 2016 increased $10.2 million, or 6%, compared to the third quarter of 2015. Core net interest income (te) was up $12.0 million, or 8%, due to interest earned on a $1.8 billion increase in average earning assets.

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Net interest income (te) for the first nine months of 2016 totaled $509.6 million, a $33.4 million, or 7%, increase from the first nine months of 2015. Excluding a $1 4.0 million decrease in purchase accounting accretion, core net interest income was up $47.4 million for the first nine months of 2016 compared to the same period of 2015. Interest earned on loans, excluding purchase acc ounting accretion, increased $52.0 million as average total loan balances grew $1.8 billion, or 13%. Total interest earned on investment securities increased $12.0 million from both a $512.0 million, or 12%, increase in average investment securities and a 9 bp increase in yields resulting from an improved investment portfolio mix as the average balance of higher yielding municipal securities increased $319 million.

The reported net interest margin was 3.20% for the third quarter of 2016, down 5 bps from the second quarter of 2016, and 8 bps from the third quarter of 2015. The core net interest margin for the third quarter of 2016 was 3.12% or 3 bps below the second quarter of

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2016, driven by a 3 bp decrease in the loan yield and a 4 bp decrease in the yield on securities. The 3 bp decrease in loan yield was mainly attributable to the impact of nonaccruing loans. The security yield decrease resulted from an increased level of premium amortization on the mortgage-backed security portfolio as repayments increased due to mortgage activity associated with the lower interest rate environment in the second and third quarters. Compared to the third quarter of 2015, the core interest margin decreased 3 bps. The major factors in this decline were a 3 bp decrease in the loan yield and a 5 bp increase in the cost of funds. The cost of funds increase was driven by a 13 bp increase in the cost of interest-bearing deposits resulting from the Company’s strategic initiatives to fund loan growth with deposits.

The overall reported yield on earning assets was 3.55% in the third quarter of 2016, down 5 bps from the second quarter of 2016 and 2 bps from the third quarter of 2015. The linked-quarter decrease resulted from a 4 bp decrease in the loan yield and a 4 bp decrease in the yield on the investment portfolio as noted above. The decrease from third quarter 2015 was primarily the result of a lower loan yield resulting from a decline in net purchase accounting accretion, partially offset by a 9 bp improvement in the yield on the securities portfolio. A $477 million increase in higher-yielding municipal securities improved the mix of the portfolio. The cost of funding earning assets was unchanged from the second quarter of 2016 and up 5 bps from the third quarter of 2015.

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The reported net interest margin for the first nine months of 2016 was 3.23% compared to 3.37% in 2015, while the core net interest margin declined to 3.13% in 2016 compared to 3.16% in 2015. Changes in net interest income (te) and the net interest margin between the year-to-date periods generally resulted from the same factors that affected the quarterly comparisons.

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

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(dollars in millions) |  |  | Volume |  | Interest |  | Rate |  | Volume |  | Interest |  | Rate |  | Volume |  | Interest |  | Rate
Average earning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & real estate loans (te) (a) |  |  | $ | 11,948.1 |  | $ | 114.4 |  | 3.81 | % |  | $ | 11,990.7 |  | $ | 115.0 |  | 3.86 | % |  | $ | 10,608.2 |  | $ | 104.4 |  |  | 3.91 | %
Residential mortgage loans |  |  |  | 2,019.8 |  |  | 20.2 |  | 4.01 |  |  |  | 2,015.3 |  |  | 20.7 |  | 4.12 |  |  |  | 1,978.0 |  |  | 20.2 |  |  | 4.08 |
Consumer loans |  |  |  | 2,055.6 |  |  | 26.7 |  | 5.18 |  |  |  | 2,053.9 |  |  | 26.2 |  | 5.12 |  |  |  | 1,925.3 |  |  | 24.5 |  |  | 5.04 |
Loan fees & late charges |  |  |  |  |  |  | (0.8) |  |  |  |  |  |  |  |  | (0.6) |  |  |  |  |  |  |  |  | 0.1 |  |  |  |
Total loans (te) (a) (b) |  |  |  | 16,023.5 |  |  | 160.5 |  | 3.99 |  |  |  | 16,059.9 |  |  | 161.3 |  | 4.03 |  |  |  | 14,511.5 |  |  | 149.2 |  |  | 4.09 |
Loans held for sale |  |  |  | 38.7 |  |  | 0.3 |  | 3.34 |  |  |  | 29.1 |  |  | 0.2 |  | 3.43 |  |  |  | 17.2 |  |  | 0.2 |  |  | 4.07 |
US Treasury and government agency securities |  |  |  | 60.1 |  |  | 0.3 |  | 1.73 |  |  |  | 50.0 |  |  | 0.2 |  | 1.68 |  |  |  | 166.8 |  |  | 0.6 |  |  | 1.55 |
Mortgage-backed securities and collateralized mortgage obligations |  |  |  | 3,965.4 |  |  | 20.6 |  | 2.08 |  |  |  | 4,062.3 |  |  | 22.0 |  | 2.16 |  |  |  | 4,052.0 |  |  | 22.0 |  |  | 2.17 |
Municipals (te) (a) |  |  |  | 677.1 |  |  | 6.7 |  | 3.95 |  |  |  | 531.4 |  |  | 5.5 |  | 4.13 |  |  |  | 200.3 |  |  | 2.3 |  |  | 4.52 |
Other securities |  |  |  | 4.6 |  |  | — |  | 2.51 |  |  |  | 5.0 |  |  | — |  | 1.89 |  |  |  | 6.4 |  |  | — |  |  | 1.59 |
Total securities (te) (a) (c) |  |  |  | 4,707.2 |  |  | 27.6 |  | 2.34 |  |  |  | 4,648.7 |  |  | 27.7 |  | 2.38 |  |  |  | 4,425.5 |  |  | 24.9 |  |  | 2.25 |
Total short-term investments |  |  |  | 428.0 |  |  | 0.5 |  | 0.47 |  |  |  | 409.3 |  |  | 0.5 |  | 0.47 |  |  |  | 479.1 |  |  | 0.3 |  |  | 0.24 |
Total earning assets (te) (a) |  |  | $ | 21,197.4 |  | $ | 188.9 |  | 3.55 | % |  | $ | 21,147.0 |  | $ | 189.7 |  | 3.60 | % |  | $ | 19,433.3 |  | $ | 174.6 |  |  | 3.57 | %
Average interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing transaction and savings deposits |  |  | $ | 6,732.8 |  | $ | 4.5 |  | 0.27 | % |  | $ | 6,779.6 |  | $ | 4.7 |  | 0.28 | % |  | $ | 7,270.1 |  | $ | 3.7 |  |  | 0.20 | %
Time deposits |  |  |  | 2,446.3 |  |  | 5.6 |  | 0.91 |  |  |  | 2,556.7 |  |  | 5.7 |  | 0.90 |  |  |  | 2,171.7 |  |  | 3.8 |  |  | 0.70 |
Public funds |  |  |  | 2,253.6 |  |  | 2.5 |  | 0.44 |  |  |  | 2,302.1 |  |  | 2.2 |  | 0.39 |  |  |  | 1,839.0 |  |  | 1.4 |  |  | 0.31 |
Total interest-bearing deposits |  |  |  | 11,432.7 |  |  | 12.6 |  | 0.44 |  |  |  | 11,638.4 |  |  | 12.6 |  | 0.44 |  |  |  | 11,280.8 |  |  | 8.9 |  |  | 0.31 |
Short-term borrowings |  |  |  | 1,366.2 |  |  | 1.0 |  | 0.30 |  |  |  | 1,351.2 |  |  | 0.9 |  | 0.27 |  |  |  | 1,050.8 |  |  | 0.3 |  |  | 0.10 |
Long-term debt |  |  |  | 468.1 |  |  | 5.0 |  | 4.28 |  |  |  | 471.9 |  |  | 5.0 |  | 4.26 |  |  |  | 499.1 |  |  | 5.3 |  |  | 4.21 |
Total borrowings |  |  |  | 1,834.3 |  |  | 6.0 |  | 1.32 |  |  |  | 1,823.1 |  |  | 5.9 |  | 1.30 |  |  |  | 1,549.9 |  |  | 5.6 |  |  | 1.42 |
Total interest-bearing liabilities |  |  |  | 13,267.0 |  |  | 18.6 |  | 0.56 | % |  |  | 13,461.5 |  |  | 18.5 |  | 0.55 | % |  |  | 12,830.7 |  |  | 14.5 |  |  | 0.45 | %
Net interest-free funding sources |  |  |  | 7,930.4 |  |  |  |  |  |  |  |  | 7,685.5 |  |  |  |  |  |  |  |  | 6,602.6 |  |  |  |  |  |  |
Total cost of funds |  |  | $ | 21,197.4 |  | $ | 18.6 |  | 0.35 | % |  | $ | 21,147.0 |  | $ | 18.5 |  | 0.35 | % |  | $ | 19,433.3 |  | $ | 14.5 |  |  | 0.30 | %
Net interest spread (te) (a) |  |  |  |  |  | $ | 170.3 |  | 2.99 | % |  |  |  |  | $ | 171.2 |  | 3.05 | % |  |  |  |  | $ | 160.1 |  |  | 3.13 | %
Net interest margin |  |  | $ | 21,197.4 |  | $ | 170.3 |  | 3.20 | % |  | $ | 21,147.0 |  | $ | 171.2 |  | 3.25 | % |  | $ | 19,433.3 |  | $ | 160.1 |  |  | 3.28 | %

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| (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.

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  | Nine Months Ended
﻿ |  |  |  | September 30, 2016 |  |  |  | September 30, 2015 |
(dollars in millions) |  |  |  | Volume |  |  | Interest |  | Rate |  |  |  | Volume |  |  | Interest |  | Rate
Average earning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & real estate loans (te) (a) |  |  | $ | 11,884.2 |  | $ | 341.1 |  | 3.83 | % |  |  | $ | 10,415.4 |  | $ | 312.8 |  | 4.01 | %
Residential mortgage loans |  |  |  | 2,031.2 |  |  | 62.2 |  | 4.09 |  |  |  |  | 1,937.4 |  |  | 60.6 |  | 4.17 |
Consumer loans |  |  |  | 2,062.1 |  |  | 79.2 |  | 5.13 |  |  |  |  | 1,822.8 |  |  | 69.5 |  | 5.10 |
Loan fees & late charges |  |  |  |  |  |  | (2.2) |  |  |  |  |  |  |  |  |  | 0.4 |  |  |
Total loans (te) (a) (b) |  |  |  | 15,977.5 |  |  | 480.3 |  | 4.01 |  |  |  |  | 14,175.6 |  |  | 443.3 |  | 4.18 |
Loans held for sale |  |  |  | 27.6 |  |  | 0.7 |  | 3.54 |  |  |  |  | 18.6 |  |  | 0.5 |  | 3.54 |
US Treasury and government agency securities |  |  |  | 53.4 |  |  | 0.7 |  | 1.70 |  |  |  |  | 246.9 |  |  | 2.9 |  | 1.56 |
Mortgage-backed securities and collateralized mortgage obligations |  |  |  | 4,053.2 |  |  | 65.4 |  | 2.15 |  |  |  |  | 3,664.2 |  |  | 60.2 |  | 2.19 |
Municipals (te) (a) |  |  |  | 516.5 |  |  | 15.8 |  | 4.08 |  |  |  |  | 197.2 |  |  | 6.7 |  | 4.56 |
Other securities |  |  |  | 5.2 |  |  | 0.1 |  | 2.06 |  |  |  |  | 8.0 |  |  | 0.2 |  | 3.00 |
Total securities (te) (a) (c) |  |  |  | 4,628.3 |  |  | 82.0 |  | 2.36 |  |  |  |  | 4,116.3 |  |  | 70.0 |  | 2.27 |
Total short-term investments |  |  |  | 452.0 |  |  | 1.6 |  | 0.47 |  |  |  |  | 537.0 |  |  | 0.9 |  | 0.23 |
Total earning assets (te) (a) |  |  | $ | 21,085.4 |  | $ | 564.6 |  | 3.58 | % |  |  | $ | 18,847.5 |  | $ | 514.7 |  | 3.65 | %
Average interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing transaction and savings deposits |  |  | $ | 6,775.9 |  | $ | 13.9 |  | 0.27 | % |  |  | $ | 6,814.1 |  | $ | 8.4 |  | 0.16 | %
Time deposits |  |  |  | 2,420.7 |  |  | 16.3 |  | 0.90 |  |  |  |  | 2,205.6 |  |  | 11.3 |  | 0.68 |
Public funds |  |  |  | 2,243.1 |  |  | 6.8 |  | 0.40 |  |  |  |  | 1,848.3 |  |  | 4.0 |  | 0.29 |
Total interest-bearing deposits |  |  |  | 11,439.7 |  |  | 37.0 |  | 0.43 |  |  |  |  | 10,868.0 |  |  | 23.7 |  | 0.29 |
Short-term borrowings |  |  |  | 1,427.2 |  |  | 2.9 |  | 0.28 |  |  |  |  | 956.2 |  |  | 0.6 |  | 0.09 |
Long-term debt |  |  |  | 474.4 |  |  | 15.1 |  | 4.25 |  |  |  |  | 473.8 |  |  | 14.2 |  | 4.02 |
Total borrowings |  |  |  | 1,901.6 |  |  | 18.0 |  | 1.27 |  |  |  |  | 1,430.0 |  |  | 14.8 |  | 1.39 |
Total interest-bearing liabilities |  |  |  | 13,341.3 |  |  | 55.0 |  | 0.55 | % |  |  |  | 12,298.0 |  |  | 38.5 |  | 0.42 | %
Net interest-free funding sources |  |  |  | 7,744.1 |  |  |  |  |  |  |  |  |  | 6,549.5 |  |  |  |  |  |
Total cost of funds |  |  | $ | 21,085.4 |  | $ | 55.0 |  | 0.35 | % |  |  | $ | 18,847.5 |  | $ | 38.5 |  | 0.28 | %
Net interest spread (te) (a) |  |  |  |  |  | $ | 509.6 |  | 3.03 | % |  |  |  |  |  | $ | 476.2 |  | 3.23 | %
Net interest margin |  |  | $ | 21,085.4 |  | $ | 509.6 |  | 3.23 | % |  |  | $ | 18,847.5 |  | $ | 476.2 |  | 3.37 | %

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| (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 related to the 2009 Peoples First Community Bank and 2011 Whitney Holding Company acquisitions, management believes that non-GAAP measures of core net interest income and core net interest margin provide investors with meaningful financial measures of the Company’s performance over time. The following table provides a reconciliation of reported and core net interest income and reported and core net interest margin.

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30, |  | September 30, |
(dollars in millions) |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |
Net interest income (te) (a) |  | $ | 170.3 |  |  | $ | 171.2 |  |  | $ | 160.1 |  |  | $ | 509.6 |  |  | $ | 476.2 |  |
Purchase accounting adjustments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan discount accretion |  |  | 5.2 |  |  |  | 5.8 |  |  |  | 7.3 |  |  |  | 17.4 |  |  |  | 32.4 |  |
Bond premium amortization |  |  | (0.6) |  |  |  | (0.6) |  |  |  | (0.9) |  |  |  | (1.9) |  |  |  | (2.9) |  |
Net purchase accounting accretion |  |  | 4.6 |  |  |  | 5.2 |  |  |  | 6.4 |  |  |  | 15.5 |  |  |  | 29.5 |  |
Core net interest income (te) (a) |  | $ | 165.7 |  |  | $ | 166.0 |  |  | $ | 153.7 |  |  | $ | 494.1 |  |  | $ | 446.7 |  |
Average earning assets |  | $ | 21,197.4 |  |  | $ | 21,147.0 |  |  | $ | 19,433.3 |  |  | $ | 21,085.4 |  |  | $ | 18,847.5 |  |
Net interest margin - reported |  |  | 3.20 | % |  |  | 3.25 | % |  |  | 3.28 | % |  |  | 3.23 | % |  |  | 3.37 | % |
Net purchase accounting adjustments |  |  | 0.08 | % |  |  | 0.10 | % |  |  | 0.13 | % |  |  | 0.10 | % |  |  | 0.21 | % |
Core net interest margin (te) (a) |  |  | 3.12 | % |  |  | 3.15 | % |  |  | 3.15 | % |  |  | 3.13 | % |  |  | 3.16 | % |

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

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﻿

Provision for Loan Losses

During the third quarter of 2016, the Company recorded a total provision for loan losses of $19.0 million, up $1.8 million from the second quarter of 2016 and up $8.9 million from the third quarter of 2015. The increase from the third quarter of 2015 is largely due to a $6.1 million increase in net charge-offs, $4.4 million of which is related to energy credits. The provision for the PCI portfolio was a credit of $0.4 million for both the three months ended September 30, 2016 and 2015. For the three months ended June 30, 2016, the provision for the PCI portfolio was $0.2 million. The credits to provision for the PCI portfolio were primarily due to reductions in expected losses in the remaining portfolio related to the Peoples First Community Bank purchase.

For the first nine months of 2016, th e total provision for loan losses was $96.2 million, up from $22.8 million for the same period in 2015. The increase over the prior year is mainly due to an additional $50 million in provision related to the energy portfolio recorded in the first quarter of 2016. Based on currently available information, management expects the provision for loan losses will approximate $12 to $17 million for the fourth quarter of 2016.

The section in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - 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 PCI loans, including loans covered under a loss share agreement with the FDIC are described in Note 3 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

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Noninterest Income

Noninterest income totaled $63.0 million for the third quarter of 2016, down slightly from the second quarter of 2016 and up $2.8 million, or 5%, compared to the third quarter of 2015. Increases in secondary mortgage market operations and derivative income, offset by declines in investment and annuity fees, income from bank-owned life insurance and trust fees were the primary factors in the linked-quarter variance. Compared to the third quarter of 2015, increases in secondary mortgage market operations, income from bank-owned life insurance and derivative income were partially offset by decreases in investment and annuity fees, and insurance commissions. Noninterest income totaled $184.9 million for the first nine months of 2016, up $7.3 million, or 4%, from the first nine months of 2015.

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Service charges on deposit accounts |  | $ | 18,716 |  | $ | 18,394 |  | $ | 18,619 |  | $ | 55,493 |  | $ | 53,842
Trust fees |  |  | 11,512 |  |  | 12,089 |  |  | 11,345 |  |  | 34,825 |  |  | 34,340
Bank card and ATM fees |  |  | 11,808 |  |  | 11,954 |  |  | 11,637 |  |  | 35,110 |  |  | 34,688
Investment and annuity fees |  |  | 4,289 |  |  | 5,043 |  |  | 6,149 |  |  | 14,265 |  |  | 16,037
Secondary mortgage market operations |  |  | 4,917 |  |  | 4,176 |  |  | 3,413 |  |  | 12,005 |  |  | 9,695
Insurance commissions and fees |  |  | 1,088 |  |  | 1,240 |  |  | 2,238 |  |  | 3,635 |  |  | 6,587
Amortization of FDIC loss share receivable |  |  | (1,539) |  |  | (1,526) |  |  | (1,564) |  |  | (4,678) |  |  | (4,034)
Income from bank-owned life insurance |  |  | 4,097 |  |  | 4,501 |  |  | 2,451 |  |  | 11,148 |  |  | 7,788
Credit related fees |  |  | 2,685 |  |  | 2,267 |  |  | 2,718 |  |  | 7,309 |  |  | 7,786
Derivative income |  |  | 1,347 |  |  | 533 |  |  | 74 |  |  | 1,741 |  |  | 1,486
Net gain (loss) on sale of assets |  |  | 991 |  |  | 1,801 |  |  | 418 |  |  | 4,557 |  |  | 363
Safety deposit box income |  |  | 424 |  |  | 413 |  |  | 441 |  |  | 1,315 |  |  | 1,356
Other miscellaneous |  |  | 2,322 |  |  | 2,041 |  |  | 2,268 |  |  | 6,698 |  |  | 7,360
Securities transactions |  |  | 351 |  |  | 768 |  |  | 4 |  |  | 1,465 |  |  | 337
Total noninterest income |  | $ | 63,008 |  | $ | 63,694 |  | $ | 60,211 |  | $ | 184,888 |  | $ | 177,631

﻿

Service charges on deposits totaled $18.7 million for the third quarter of 2016, up slightly from both the second quarter of 2016 and the third quarter of 2015. The linked-quarter increase was due to an increase in consumer overdraft fees while the increase compared to the third quarter of 2015 was due to growth in fees from commercial products.

Bank card and ATM fees totaled $11.8 million for the quarter ended September 30, 2016, compared to $12.0 million in the second quarter of 2016. Compared to the third quarter of 2015, bank card and ATM fees were up $0.2 million, or 1%.

Se condary mortgage market operations fee income increased $0.7 million, or 18%, from the second quarter of 2016, and $1.5 million,

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or 44%, compared to the third quarter of 2015. These increases are mainly related to increased loan production resulting from a combination of the addition of several new mortgage originators hired in the fourth quarter of 2015 and first quarter of 2016 and a lower interest rate environment for mortgage related products. Mortgage loan originations for the third quarter of 2016 were up 13% over the second quarter and 49% over the third quarter of 2015. For the year, mortgage loan originations are up 34% compared to the same period in 2015.

﻿

Trust fees decreased $0.6 million, or 5%, linked quarter due to seasonal income related to tax preparation fees earned in the second quarter. For the year, trust fees totaled $34.8 million, up $0.5 million, or 1%, compared to the same period in 2015.

﻿

Investment and annuity fees and insurance commissions and fees totaled $5.4 million in the third quarter of 2016, down $0.9 million linked quarter and down $3.0 million compared to the third quarter of 2015. Investment and annuity fees were down due to a change in the mix of products sold. In the current interest rate environment, customer demand for longer-term annuity products has been replaced for shorter duration products which result in a lower up-front commission. Additionally, the Company has shifted its focus more towards recurring products that pay no up-front commissions but generate additional revenue over time. Insurance commissions were down compared to the third quarter of 2015, when the Company elected to exit its title insurance operation to focus on more profitable areas. The title insurance operation contributed approximately $1 million in fee income quarterly.

Income from bank-owned life insurance was down $0.4 million, or 9%, linked quarter, and up $1.6 million, or 67% compared to the third quarter of 2015. For the year, income from bank owned life-insurance totaled $11.1 million, up $3.4 million, or 43%, from the nine months ended September 30, 2015. The increases over the third quarter of 2015 and the nine months ended September 30, 2015 were both due to increases in the amount of bank-owned policies and the proceeds from death benefit claims.

Income on our customer interest rate derivative program resulted in a $1.3 million net gain for the third quarter of 2016 compared to a $0.5 million net gain in the second quarter of 2016 and a $0.1 million net gain in the third quarter of 2015. This income is volatile in nature and is dependent upon both customer sales activity and market value adjustments due to interest rate movement.

Net gain on sale of assets mainly consists of the sale of certain specifically identified portfolio mortgage loan products that were sold for asset/liability management purposes. Further sales are not anticipated in the foreseeable future.

Noninterest Expense

Noninterest expense for the third quarter of 2016 was $149.1 million, down $1.9 million, or 1%, from the second quarter of 2016, and down $2.1 million, or 1%, from the third quarter of 2015. Total noninterest expense for the first nine months of 2016 was $456.0 million, a $7.6 million, or 2%, decrease from the first nine months of 2015. Excluding nonoperating expense items, noninterest expense for the first nine months of 2016 totaled $451.1 million, an increase of $3.7 million, or less than 1% from 2015.

﻿

There were no nonoperating expenses in the third or second quarter of 2016, and none in the third quarter of 2015. Nonoperating expenses totaled $5.0 million year-to-date 2016 compared to $16.2 million in 2015. Year-to-date 2016 n onoperating expenses were almost all related to separation costs included in personnel expenses. The nonoperating expenses in 2015 included items related to branch closings and asset dispositions as part of the Company’s branch rationalization process, the resolution of FDIC denied loss share claims and investments in technology to enhance the Compan y’s risk management processes.

﻿

The following discussion of the components of noninterest expenses excludes nonoperating expenses for each period. A summary of nonoperating expenses by major category is included in the second table below.

Personnel expense totaled $83.2 million for the third quarter of 2016. This total was down approximately $1 million, or 1%, compared to both linked quarter and the third quarter of 2015. The linked-quarter decrease is mainly seasonal and related to benefits. The decrease from the third quarter of 2015 is related to cost controls implemented in late 2015 and early 2016, which included a reduction of 116 full time equivalent positions over the past year. In the first nine months of 2016, personnel expenses totaled $252.1 million, a $5.3 million, or 2% increase over 2015, primarily related to increased incentive accruals.

Occupancy and equipment expenses totaled $13.4 million in the third quarter of 2016, down slightly linked quarter and down $1.4 million, or 9%, compared to the third quarter of 2015. This decrease is attributable to a number of cost control measures implemented during the past eighteen months, including eliminating excess space through consolidation of certain back office areas and more efficient space planning. Year-to-date occupancy and equipment expenses totaled $41.0 million, down $4.8 million compared to the first nine months of 2015.

Other real estate expense recorded a net credit of $5.2 million in the third quarter of 2016, compared to expense of approximately $0.4 million in both the second quarter of 2016 and the third quarter of 2015. The $5.2 million net credit includes a $5.3 million gain from the foreclosure and disposition of a large property that had been acquired in the Peoples First Community Bank acquisition.

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All other expenses, excluding amortization of intangibles and nonoperating expense items, totaled $52.8 million for the third quarter of 2016, a $4.9 million, or 10%, increase from the second quarter of 2016. These expenses totaled $45.8 million in the third quarter of 2015. For the first nine months of 2016, all other expenses, excluding amortization of intangibles and nonoperating expense items totaled $147.3 million, a $12.3 million, or 9% increase over the same period of 2015. The major components of the increases compared to prior periods were a $4.0 million expense related to a n early contract termination and $2.5 million in flood-related expenses as noted earlier in “Highlights of Third Quarter 2016 Financial Results.”

Also contributing to the current period increase in year-to-date other expense compared to the first nine months of 2015 was a $5.4 million, or 45%, increase in d eposit insurance and regulatory fees due to asset growth and an increased level of criticized assets.

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Operating expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation expense |  | $ | 70,290 |  | $ | 70,233 |  | $ | 71,187 |  | $ | 209,961 |  | $ | 205,505
Employee benefits |  |  | 12,873 |  |  | 14,004 |  |  | 12,968 |  |  | 42,180 |  |  | 41,300
Personnel expense |  |  | 83,163 |  |  | 84,237 |  |  | 84,155 |  |  | 252,141 |  |  | 246,805
Net occupancy expense |  |  | 10,068 |  |  | 10,394 |  |  | 11,222 |  |  | 30,818 |  |  | 34,149
Equipment expense |  |  | 3,349 |  |  | 3,080 |  |  | 3,598 |  |  | 10,203 |  |  | 11,610
Data processing expense |  |  | 14,590 |  |  | 14,370 |  |  | 13,844 |  |  | 43,167 |  |  | 41,306
Professional services expense |  |  | 6,584 |  |  | 7,712 |  |  | 7,656 |  |  | 21,736 |  |  | 20,067
Amortization of intangibles |  |  | 4,886 |  |  | 5,005 |  |  | 6,027 |  |  | 15,015 |  |  | 18,493
Telecommunications and postage |  |  | 3,284 |  |  | 3,272 |  |  | 3,485 |  |  | 9,917 |  |  | 10,606
Deposit insurance and regulatory fees |  |  | 5,969 |  |  | 6,049 |  |  | 4,225 |  |  | 17,415 |  |  | 12,033
Other real estate expense, net |  |  | (5,214) |  |  | 350 |  |  | 422 |  |  | (4,419) |  |  | 1,379
Advertising |  |  | 2,859 |  |  | 2,693 |  |  | 2,856 |  |  | 7,909 |  |  | 7,140
Ad valorem and franchise taxes |  |  | 2,268 |  |  | 2,340 |  |  | 2,868 |  |  | 6,911 |  |  | 8,319
Printing and supplies |  |  | 1,134 |  |  | 1,065 |  |  | 1,193 |  |  | 3,310 |  |  | 3,568
Insurance expense |  |  | 803 |  |  | 829 |  |  | 794 |  |  | 2,467 |  |  | 2,644
Travel expense |  |  | 1,022 |  |  | 1,079 |  |  | 1,419 |  |  | 3,050 |  |  | 3,944
Entertainment and contributions |  |  | 1,686 |  |  | 2,001 |  |  | 1,634 |  |  | 5,319 |  |  | 5,009
Tax credit investment amortization |  |  | 861 |  |  | 1,833 |  |  | 2,161 |  |  | 4,437 |  |  | 6,352
Other miscellaneous |  |  | 11,746 |  |  | 4,633 |  |  | 3,634 |  |  | 21,658 |  |  | 13,960
Total operating expense |  | $ | 149,058 |  | $ | 150,942 |  | $ | 151,193 |  | $ | 451,054 |  | $ | 447,384
Nonoperating expense items |  |  | — |  |  | — |  |  | — |  |  | 4,978 |  |  | 16,241
Total noninterest expense |  | $ | 149,058 |  | $ | 150,942 |  | $ | 151,193 |  | $ | 456,032 |  | $ | 463,625

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﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2016 |  | 2015 |  |  | 2016 |  |  | 2015
Nonoperating expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation expense |  | $ | — |  | $ | — |  | $ | — |  | $ | 3,563 |  | $ | 1,249
Employee benefits |  |  | — |  |  | — |  |  | — |  |  | 411 |  |  | 172
Personnel expense |  |  | — |  |  | — |  |  | — |  |  | 3,974 |  |  | 1,421
Net occupancy expense |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 54
Equipment expense |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 13
Data processing expense |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 106
Professional services expense |  |  | — |  |  | — |  |  | — |  |  | 181 |  |  | 11,911
Telecommunications and postage |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1
Other real estate expense, net |  |  | — |  |  | — |  |  | — |  |  | 323 |  |  | —
Other expense |  |  | — |  |  | — |  |  | — |  |  | 500 |  |  | 2,735
Total nonoperating expenses |  | $ | — |  | $ | — |  | $ | — |  | $ | 4,978 |  | $ | 16,241

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40

Table of Contents

Income Taxes

The effective income tax rate for the third quarter of 2016 was approximately 20%, compared to 23% in the first and second quarters of 2016 and 26% in the third quarter of 2015. The expected effective tax rate for the 2016 year decreased from the expected rate used in the first and second quarters primarily due to the Company’s increased investment in bonds and loans generating tax-exempt interest and lower than originally expected pre-tax earnings for 2016 mostly due to the elevated provision for energy related credits. Management expects the effective tax rates for 2016 and 2017 will approximate 2 1% to 22% and 25% to 27%, respectively. The Company’s effective tax rate varies 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.

During 2008, 2011 and 2013, the Bank’s Community Development Entity (CDE) was awarded three federal NMTC allocations totaling $148 million. In addition to investing in federal and state NMTC projects through its own CDE, the Bank has invested in projects in other unrelated CDEs. Since 2008, the Bank has invested in NMTC projects generating approximately $104 million in federal and state tax credits. Federal tax credits from NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three to five years.

The Company intends to continue making investments in tax credit projects and qualified bonds. However, 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 to date, the Company expects to realize benefits from federal and state tax credits totaling $9.3 million, $7.5 million and $5.6 million for 2017, 2018, and 2019, respectively.

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Taxes computed at statutory rate |  | $ | 20,472 |  | $ | 21,184 |  | $ | 19,519 |  | $ | 43,389 |  | $ | 55,280
Tax credits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
QZAB/QSCB |  |  | (689) |  |  | (681) |  |  | (730) |  |  | (2,067) |  |  | (2,191)
NMTC - Federal and State |  |  | (1,920) |  |  | (2,009) |  |  | (2,430) |  |  | (5,759) |  |  | (6,831)
LIHTC |  |  | 6 |  |  | 24 |  |  | (25) |  |  | 18 |  |  | (73)
Total tax credits |  |  | (2,603) |  |  | (2,666) |  |  | (3,185) |  |  | (7,808) |  |  | (9,095)
State income taxes, net of federal income tax benefit |  |  | 567 |  |  | 762 |  |  | 911 |  |  | 1,621 |  |  | 2,381
Tax-exempt interest |  |  | (3,818) |  |  | (3,407) |  |  | (1,908) |  |  | (10,278) |  |  | (5,401)
Bank owned life insurance |  |  | (1,517) |  |  | (1,573) |  |  | (858) |  |  | (3,980) |  |  | (2,725)
Impact from interim estimated effective tax rate |  |  | (1,468) |  |  | (879) |  |  | (43) |  |  | 3,035 |  |  | 855
Other, net |  |  | 139 |  |  | 197 |  |  | 166 |  |  | 526 |  |  | 494
Income tax expense |  | $ | 11,772 |  | $ | 13,618 |  | $ | 14,602 |  | $ | 26,505 |  | $ | 41,789

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Accounting standards for income taxes require income tax provisions for interim periods to be based on the estimated effective tax rate for the year. The estimated annual effective tax rate is applied to year-to-date pretax book income to compute the year-to-date income tax provision. Income taxes for the current interim period are equal to the difference between the year-to-date income taxes as computed at the latest interim period date, less year-to-date income taxes as determined at the end of the previous interim period. Application of the requirements for accounting for income taxes in interim periods can result in a variation in the customary relationship between income tax expense and pretax accounting income, which is reflected as “Impact from interim estimated effective tax rate” in the table above.

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41

Table of Contents

Selected Financial Data

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30,
﻿ |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Common Share Data |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.59 |  | $ | 0.59 |  | $ | 0.52 |  | $ | 1.23 |  | $ | 1.45
Diluted |  | $ | 0.59 |  | $ | 0.59 |  | $ | 0.52 |  | $ | 1.23 |  | $ | 1.45
Cash dividends paid |  | $ | 0.24 |  | $ | 0.24 |  | $ | 0.24 |  | $ | 0.72 |  | $ | 0.72
Book value per share (period-end) |  | $ | 32.09 |  | $ | 31.77 |  | $ | 31.65 |  | $ | 32.09 |  | $ | 31.65
Tangible book value per share (period-end) |  | $ | 22.89 |  | $ | 22.50 |  | $ | 22.18 |  | $ | 22.89 |  | $ | 22.18
Weighted average number of shares (000s): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 77,550 |  |  | 77,523 |  |  | 77,928 |  |  | 77,525 |  |  | 78,452
Diluted |  |  | 77,677 |  |  | 77,680 |  |  | 78,075 |  |  | 77,653 |  |  | 78,609
Period-end number of shares (000s) |  |  | 77,571 |  |  | 77,538 |  |  | 77,519 |  |  | 77,571 |  |  | 77,519
Market data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
High sales price |  | $ | 32.94 |  | $ | 27.84 |  | $ | 32.47 |  | $ | 32.94 |  | $ | 32.98
Low sales price |  | $ | 24.49 |  | $ | 21.93 |  | $ | 25.20 |  | $ | 20.01 |  | $ | 24.96
Period-end closing price |  | $ | 32.43 |  | $ | 26.11 |  | $ | 27.05 |  | $ | 32.43 |  | $ | 27.05
Trading volume (000s) (a) |  |  | 42,809 |  |  | 41,668 |  |  | 44,705 |  |  | 140,796 |  |  | 136,733

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Income Statement: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  | $ | 182,153 |  | $ | 183,506 |  | $ | 171,329 |  | $ | 546,300 |  | $ | 505,336
Interest income (te) (a) |  |  | 188,937 |  |  | 189,702 |  |  | 174,633 |  |  | 564,623 |  |  | 514,684
Interest expense |  |  | 18,640 |  |  | 18,537 |  |  | 14,499 |  |  | 54,982 |  |  | 38,557
Net interest income (te) (a) |  |  | 170,297 |  |  | 171,165 |  |  | 160,134 |  |  | 509,641 |  |  | 476,127
Provision for loan losses |  |  | 18,972 |  |  | 17,196 |  |  | 10,080 |  |  | 96,204 |  |  | 22,842
Noninterest income |  |  | 63,008 |  |  | 63,694 |  |  | 60,211 |  |  | 184,888 |  |  | 177,631
Noninterest expense (excluding amortization of intangibles) |  |  | 144,172 |  |  | 145,937 |  |  | 145,166 |  |  | 441,017 |  |  | 445,132
Amortization of intangibles |  |  | 4,886 |  |  | 5,005 |  |  | 6,027 |  |  | 15,015 |  |  | 18,493
Income before income taxes |  |  | 58,491 |  |  | 60,525 |  |  | 55,768 |  |  | 123,970 |  |  | 157,943
Income tax expense |  |  | 11,772 |  |  | 13,618 |  |  | 14,602 |  |  | 26,505 |  |  | 41,789
Net income |  | $ | 46,719 |  | $ | 46,907 |  | $ | 41,166 |  | $ | 97,465 |  | $ | 116,154

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  | Three Months Ended |  |  | Nine Months Ended
﻿ |  |  | September 30, |  |  | June 30, |  |  | September 30, |  |  | September 30,
﻿ |  |  | 2016 |  |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015
Performance Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Return on average assets |  |  | 0.80 | % |  |  | 0.82 | % |  |  | 0.76 | % |  |  | 0.56 | % |  |  | 0.74 | %
Return on average common equity |  |  | 7.52 | % |  |  | 7.76 | % |  |  | 6.70 | % |  |  | 5.33 | % |  |  | 6.37 | %
Return on average tangible common equity |  |  | 10.58 | % |  |  | 11.04 | % |  |  | 9.60 | % |  |  | 7.55 | % |  |  | 9.16 | %
Earning asset yield (te) (a) |  |  | 3.55 | % |  |  | 3.60 | % |  |  | 3.57 | % |  |  | 3.58 | % |  |  | 3.65 | %
Total cost of funds |  |  | 0.35 | % |  |  | 0.35 | % |  |  | 0.30 | % |  |  | 0.35 | % |  |  | 0.28 | %
Net interest margin (te) (a) |  |  | 3.20 | % |  |  | 3.25 | % |  |  | 3.28 | % |  |  | 3.23 | % |  |  | 3.37 | %
Noninterest income to total revenue (te) (a) |  |  | 27.01 | % |  |  | 27.12 | % |  |  | 27.32 | % |  |  | 26.62 | % |  |  | 27.13 | %
Efficiency ratio (b) |  |  | 61.80 | % |  |  | 62.14 | % |  |  | 65.88 | % |  |  | 62.78 | % |  |  | 65.64 | %
Average loan/deposit ratio |  |  | 85.64 | % |  |  | 85.80 | % |  |  | 83.82 | % |  |  | 86.04 | % |  |  | 83.93 | %
FTE employees (period-end) |  |  | 3,747 |  |  |  | 3,723 |  |  |  | 3,863 |  |  |  | 3,747 |  |  |  | 3,863 |
Capital Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stockholders' equity to total assets |  |  | 10.77 | % |  |  | 10.68 | % |  |  | 11.36 | % |  |  | 10.77 | % |  |  | 11.36 | %
Tangible common equity ratio (c) |  |  | 7.93 | % |  |  | 7.81 | % |  |  | 8.24 | % |  |  | 7.93 | % |  |  | 8.24 | %

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

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

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

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30, |  | September 30,
($ in thousands) |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Asset Quality Information |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonaccrual loans (a) |  | $ | 302,810 |  |  | $ | 265,722 |  |  | $ | 166,945 |  |  | $ | 302,810 |  |  | $ | 166,945 |
Restructured loans - still accruing |  |  | 8,059 |  |  |  | 35,974 |  |  |  | 5,779 |  |  |  | 8,059 |  |  |  | 5,779 |
Total nonperforming loans |  |  | 310,869 |  |  |  | 301,696 |  |  |  | 172,724 |  |  |  | 310,869 |  |  |  | 172,724 |
Other real estate (ORE) and foreclosed assets |  |  | 19,806 |  |  |  | 23,374 |  |  |  | 33,599 |  |  |  | 19,806 |  |  |  | 33,599 |
Total nonperforming assets |  | $ | 330,675 |  |  | $ | 325,070 |  |  | $ | 206,323 |  |  | $ | 330,675 |  |  | $ | 206,323 |
Accruing loans 90 days past due (a) |  | $ | 4,933 |  |  | $ | 7,982 |  |  | $ | 5,876 |  |  | $ | 4,933 |  |  | $ | 5,876 |
Net charge-offs - non-purchased credit impaired |  |  | 9,531 |  |  |  | 7,803 |  |  |  | 3,471 |  |  |  | 38,633 |  |  |  | 8,335 |
Net charge-offs - purchased credit impaired |  |  | (124) |  |  |  | (147) |  |  |  | (1,328) |  |  |  | (338) |  |  |  | 1,709 |
Allowance for loan losses |  |  | 236,061 |  |  |  | 226,086 |  |  |  | 139,576 |  |  |  | 236,061 |  |  |  | 139,576 |
Provision for loan losses |  |  | 18,972 |  |  |  | 17,196 |  |  |  | 10,080 |  |  |  | 96,204 |  |  |  | 22,842 |
Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonperforming assets to loans, ORE and foreclosed assets |  |  | 2.06 | % |  |  | 2.02 | % |  |  | 1.39 | % |  |  | 2.06 | % |  |  | 1.39 | %
Accruing loans 90 days past due to loans |  |  | 0.03 | % |  |  | 0.05 | % |  |  | 0.04 | % |  |  | 0.03 | % |  |  | 0.04 | %
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets |  |  | 2.09 | % |  |  | 2.07 | % |  |  | 1.43 | % |  |  | 2.09 | % |  |  | 1.43 | %
Net charge-offs - non-purchase credit impaired to average loans |  |  | 0.24 | % |  |  | 0.20 | % |  |  | 0.09 | % |  |  | 0.32 | % |  |  | 0.08 | %
Allowance for loan losses to period-end loans |  |  | 1.47 | % |  |  | 1.41 | % |  |  | 0.95 | % |  |  | 1.47 | % |  |  | 0.95 | %
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due |  |  | 74.75 | % |  |  | 73.01 | % |  |  | 78.15 | % |  |  | 74.75 | % |  |  | 78.15 | %

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| (a) |  | Nonaccrual loans and accruing loans past due 90 days or more do not include purchased credit impaired loans with an accretable yield. Included in nonaccrual loans are $48.2 million, $34.8 million, and $4.9 million in restructured loans at September 30, 2016, June 30, 2016, and September 30, 2015, respectively. Purchased credit impaired loans include loans covered by an FDIC loss share agreement totaling $152.3 million, $160.0 million and $177.5 million as of September 30, 2016, June 30, 2016, and September 30, 2015, respectively.

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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended
﻿ |  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
(in thousands) |  | 2016 |  | 2016 |  | 2016 |  | 2015 |  | 2015
Period-End Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total loans, net of unearned income (a) |  | $ | 16,070,821 |  | $ | 16,035,796 |  | $ | 15,978,124 |  | $ | 15,703,314 |  | $ | 14,763,050
Loans held for sale |  |  | 42,545 |  |  | 42,297 |  |  | 24,001 |  |  | 20,434 |  |  | 19,764
Securities |  |  | 4,843,112 |  |  | 4,806,370 |  |  | 4,667,837 |  |  | 4,463,792 |  |  | 4,548,922
Short-term investments |  |  | 128,920 |  |  | 153,159 |  |  | 151,551 |  |  | 565,555 |  |  | 194,414
Earning assets |  |  | 21,085,398 |  |  | 21,037,622 |  |  | 20,821,513 |  |  | 20,753,095 |  |  | 19,526,150
Allowance for loan losses |  |  | (236,061) |  |  | (226,086) |  |  | (217,794) |  |  | (181,179) |  |  | (139,576)
Goodwill |  |  | 621,193 |  |  | 621,193 |  |  | 621,193 |  |  | 621,193 |  |  | 621,193
Other intangible assets, net |  |  | 92,523 |  |  | 97,409 |  |  | 102,414 |  |  | 107,538 |  |  | 113,229
Other assets (c) |  |  | 1,545,677 |  |  | 1,533,652 |  |  | 1,482,044 |  |  | 1,532,958 |  |  | 1,481,797
Total assets |  | $ | 23,108,730 |  | $ | 23,063,790 |  | $ | 22,809,370 |  | $ | 22,833,605 |  | $ | 21,602,793
Noninterest-bearing deposits |  | $ | 7,543,041 |  | $ | 7,151,416 |  | $ | 7,108,598 |  | $ | 7,276,127 |  | $ | 6,075,558
Interest-bearing transaction and savings deposits |  |  | 6,620,373 |  |  | 6,754,513 |  |  | 7,043,484 |  |  | 6,767,881 |  |  | 7,360,677
Interest-bearing public funds deposits |  |  | 2,394,148 |  |  | 2,354,234 |  |  | 2,152,903 |  |  | 2,253,645 |  |  | 1,768,133
Time deposits |  |  | 2,327,915 |  |  | 2,556,706 |  |  | 2,351,165 |  |  | 2,051,259 |  |  | 2,235,580
Total interest-bearing deposits |  |  | 11,342,436 |  |  | 11,665,453 |  |  | 11,547,552 |  |  | 11,072,785 |  |  | 11,364,390
Total deposits |  |  | 18,885,477 |  |  | 18,816,869 |  |  | 18,656,150 |  |  | 18,348,912 |  |  | 17,439,948
Short-term borrowings |  |  | 1,075,956 |  |  | 1,095,107 |  |  | 1,100,787 |  |  | 1,423,644 |  |  | 1,049,182
Long-term debt (c) |  |  | 463,710 |  |  | 468,028 |  |  | 471,245 |  |  | 490,145 |  |  | 491,820
Other liabilities |  |  | 194,460 |  |  | 220,421 |  |  | 160,148 |  |  | 157,761 |  |  | 168,282
Stockholders' equity |  |  | 2,489,127 |  |  | 2,463,365 |  |  | 2,421,040 |  |  | 2,413,143 |  |  | 2,453,561
Total liabilities & stockholders' equity |  | $ | 23,108,730 |  | $ | 23,063,790 |  | $ | 22,809,370 |  | $ | 22,833,605 |  | $ | 21,602,793

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Three Months Ended |  | Nine Months Ended
﻿ |  | September 30, |  | June 30, |  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2016 |  | 2015 |  | 2015 |  | 2015
Average Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total loans, net of unearned income (a) |  | $ | 16,023,458 |  | $ | 16,059,846 |  | $ | 14,511,474 |  | $ | 15,977,526 |  | $ | 14,175,611
Loans held for sale |  |  | 38,687 |  |  | 29,053 |  |  | 17,233 |  |  | 27,561 |  |  | 18,567
Securities (b) |  |  | 4,707,224 |  |  | 4,648,807 |  |  | 4,425,546 |  |  | 4,628,330 |  |  | 4,116,270
Short-term investments |  |  | 428,037 |  |  | 409,323 |  |  | 479,084 |  |  | 452,028 |  |  | 536,961
Earning assets |  |  | 21,197,406 |  |  | 21,147,029 |  |  | 19,433,337 |  |  | 21,085,445 |  |  | 18,847,409
Allowance for loan losses |  |  | (228,603) |  |  | (220,679) |  |  | (132,634) |  |  | (210,913) |  |  | (131,001)
Goodwill and other intangible assets |  |  | 716,097 |  |  | 721,031 |  |  | 737,361 |  |  | 721,056 |  |  | 743,785
Other assets (c) |  |  | 1,517,890 |  |  | 1,491,210 |  |  | 1,437,879 |  |  | 1,496,117 |  |  | 1,472,703
Total assets |  | $ | 23,202,790 |  | $ | 23,138,591 |  | $ | 21,475,943 |  | $ | 23,091,705 |  | $ | 20,932,896
Noninterest-bearing deposits |  | $ | 7,277,568 |  | $ | 7,079,426 |  | $ | 6,032,680 |  | $ | 7,130,762 |  | $ | 6,022,034
Interest-bearing transaction and savings deposits |  |  | 6,732,815 |  |  | 6,779,565 |  |  | 7,270,061 |  |  | 6,775,870 |  |  | 6,814,057
Interest-bearing public fund deposits |  |  | 2,253,588 |  |  | 2,302,096 |  |  | 1,838,952 |  |  | 2,243,078 |  |  | 1,848,340
Time deposits |  |  | 2,446,265 |  |  | 2,556,668 |  |  | 2,171,740 |  |  | 2,420,717 |  |  | 2,205,574
Total interest-bearing deposits |  |  | 11,432,668 |  |  | 11,638,329 |  |  | 11,280,753 |  |  | 11,439,665 |  |  | 10,867,971
Total deposits |  |  | 18,710,236 |  |  | 18,717,755 |  |  | 17,313,433 |  |  | 18,570,427 |  |  | 16,890,005
Short-term borrowings |  |  | 1,366,236 |  |  | 1,351,227 |  |  | 1,050,801 |  |  | 1,427,199 |  |  | 956,228
Long-term debt (c) |  |  | 468,100 |  |  | 471,924 |  |  | 499,077 |  |  | 474,435 |  |  | 473,804
Other liabilities |  |  | 185,820 |  |  | 167,680 |  |  | 173,564 |  |  | 174,826 |  |  | 173,675
Stockholders' equity |  |  | 2,472,398 |  |  | 2,430,005 |  |  | 2,439,068 |  |  | 2,444,818 |  |  | 2,439,184
Total liabilities & stockholders' equity |  | $ | 23,202,790 |  | $ | 23,138,591 |  | $ | 21,475,943 |  | $ | 23,091,705 |  | $ | 20,932,896

﻿

| (a) |  | Includes nonaccrual loans.

| (b) |  | Average secur ities do not include unrealiz ed holding gains/losses on available for sale securities.

| (c) |  | Prior periods have been restated to reclassify debt issuance costs from other assets to net against the related debt.

45

Table of Contents

LIQUIDITY

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

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, as well as maturities and repayments of investment securities. Short-term investments such as federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional sources of liquidity to meet cash flow requirements. Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window. As shown in the table below, our ratio of free securities to total securities was 23.97% at September 30, 2016, compared to 28.39% at June 30, 2016 and 33.68% at September 30, 2015. The decrease from September 30, 201 5 is mainly attributable to pledging requirements related to a $626 million, or 35%, increase in public fund deposits resulting from certain deposit growth initiatives implemented in 2015.

﻿

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
Liquidity Metrics |  | 2016 |  | 2016 |  | 2016 |  | 2015 |  | 2015
Free securities / total securities |  | 23.97 | % |  | 28.39 | % |  | 25.47 | % |  | 20.29 | % |  | 33.68 | %
Core deposits / total deposits |  | 93.03 | % |  | 91.99 | % |  | 92.95 | % |  | 94.90 | % |  | 93.50 | %
Wholesale funds / core deposits |  | 8.76 | % |  | 9.03 | % |  | 9.07 | % |  | 10.99 | % |  | 9.48 | %
Quarter-to-date average loans /quarter-to-date average deposits |  | 85.64 | % |  | 85.80 | % |  | 86.69 | % |  | 85.28 | % |  | 83.82 | %

The liability portion of the balance sheet provides liquidity mainly through the Company’s ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit and sweep accounts. Core deposits consist of total deposits excluding certificates of deposits (“CDs”) of $250,000 or more, brokered deposits, and balances in sweep time deposit products used by commercial customers. The ratio of core deposits to total deposits was 93.03% at September 30, 2016, compared to 91.99% at June 30, 2016 and 93.50 % at September 30, 2015. Brokered deposits totaled $758 million as of September 30, 2016, a $201 million decrease from June 30, 2016, and up $376 million compared to Sept ember 30, 2015. The Company will use brokered deposits on a temporary basis to support its short-term funding requirements, subject to very strict parameters regarding the terms and interest rate.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, our short-term borrowing capacity includes an approved line of credit with the FHLB of $3.1 billion and borrowing capacity at the Federal Reserve’s discount window of $1.7 billion at September 30, 2016. Wholesale funds, which are comprised of short-term borrowings and long-term debt, were 8.76% of core deposits at September 30, 2016, compared to 9.03% at June 30, 2016 and 9.48% at September 30, 2015. The decrease from September 30, 2015 primarily reflects a $1.3 billion increase in core deposits. FHLB borrowings totaled $739 million at September 30, 2016 compared to $675 million at June 30, 2016. FHLB borrowings were $900 million at year end 2015 and $600 million at September 30, 2015. No amounts had been borrowe d at the Federal Reserve’s discount window in any period. See the discussion on “Balance Sheet Analysis - Deposits” for more information.

Another key measure the Company uses to monitor its liquidity position is the lo an-to-deposit ratio (average loans outstanding for the reporting period divided by average d eposits outstanding). The loan-to-deposit ratio measures the amount of funds the Company lends out for each dollar of deposi ts on hand. The Company’s loan-to-deposit ratio for the third quarter of 2016 was 85.64%, down slightly from the second quarter of 2016, and an increase of 182 bps from September 30, 2015. The increase in the loan-to-deposit ratio from September 30, 2015 was the result of 10% average loan growth outpacing 8% deposit growth. T he Compa ny has established an int ernal target range for the loan-to-deposit ratio from 83% to 87%.

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, 2016 and 2015.

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

﻿

﻿

46

Table of Contents

CAPITAL RESOURCES

﻿

Stockholders’ equity totaled $2.5 billion at September 30, 2016, up $26 million, or 1% compared to June 30, 2016 and up $76 million, or 3% from year end. The tangible common equity ratio w as 7.93% at September 30, 2016, compared to 7.81% at June 30, 2016 and 8.24% at September 30, 2015. The decline in the ratio from last year was primarily due to $1.5 billion in asset growth. The Company has established an internal target for the tangible common equity ratio of at least 8.00%. However, management will allow the Company’s tangible common equity ratio to drop below 8.00% on a temporary basis if it believes that the shortfall can be replenished through normal operations. Management expects the tangible common equity ratio at December 31, 2016, to decrease slightly compared to September 30, 2016 due to the fourth quarter 2016 annual pension fund liability valuation, but expect s the tangible common equity ratio to return to a level in excess of its 8.00% target during 2017.

On August 28, 2015, the Company’s Board of Directors approved a stock repurchase plan that authorized the repurchase of up to 5%, or approximately 3.9 million shares of its outstanding common stock. The approved plan allowed the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company from time to time until its expiration date on September 30, 2016. Under this plan, the Company repurchased 741,393 shares of its common stock at an average price of $27.44 per share. There were no share repurchases under the plan in 2016.

﻿

At September 30, 2016, the regulatory capital ratios of the Company and the Bank were well in excess of current regulatory minimum requirements, as indicated in the table below. The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators and both currently exceed all capital requirements of the new Basel III requirements which were effective January 1, 2015, including the fully phased-in conservation buffer. See the Supervision and Regulation section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion of the Company’s capital requirements.

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

﻿

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Well- |  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
﻿ |  | Capitalized |  | 2016 |  | 2016 |  | 2016 |  | 2015 |  | 2015
Total capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Holding Company |  | 10.00 | % |  | 12.15 | % |  | 11.96 | % |  | 11.75 | % |  | 11.86 | % |  | 12.32 | %
Whitney Bank |  | 10.00 | % |  | 11.81 | % |  | 11.70 | % |  | 11.56 | % |  | 11.73 | % |  | 12.04 | %
Tier 1 common equity capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Holding Company |  | 6.50 | % |  | 10.09 | % |  | 9.94 | % |  | 9.69 | % |  | 9.96 | % |  | 10.56 | %
Whitney Bank |  | 6.50 | % |  | 10.56 | % |  | 10.48 | % |  | 10.30 | % |  | 10.64 | % |  | 11.13 | %
Tier 1 capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Holding Company |  | 8.00 | % |  | 10.09 | % |  | 9.94 | % |  | 9.69 | % |  | 9.96 | % |  | 10.56 | %
Whitney Bank |  | 8.00 | % |  | 10.56 | % |  | 10.48 | % |  | 10.30 | % |  | 10.64 | % |  | 11.13 | %
Tier 1 leverage capital |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Holding Company |  | 5.00 | % |  | 8.35 | % |  | 8.22 | % |  | 8.14 | % |  | 8.55 | % |  | 8.85 | %
Whitney Bank |  | 5.00 | % |  | 8.76 | % |  | 8.69 | % |  | 8.68 | % |  | 9.16 | % |  | 9.36 | %

﻿

Regulatory definitions:

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

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

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

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

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

47

Table of Contents

BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $4.8 billi on at September 30, 2016, up $37 mil lion from June 30, 2016 and $294 million from September 30, 2015. During the third quarter of 2016, the Comp any purchased approximately $317 million of mortgage-backed securities and municipal securities at an average yield of 2.54%. Included in the third quarter purchase were $175 million of U.S. government agency-guaranteed commercial mortgage-backed securities. At September 30, 2016, securities available for sale totaled $2.4 billion and securities held to maturity totaled $2.4 billion.

The securities portfolio consists mainly of residential and commercial 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 effective duration for the overall portfolio of between two and five years. The effective duration calculates the price sensitivity to changes in interest rates. At September 30, 2016, the average maturity of the portfolio was 5.06 years with an effective duration of 3.78 years and a weighted-average yield of 2.33%. Management simulations indicate that the effective duration would increase to 4.37 years with a 100 bp increase in the yield curve and to 4.62 years with a 200 bp increase. At December 31, 2015, the average maturity of the portfolio was 4.90 years with an effective duration of 3.89 years and a weighted-average yield of 2.27%. An improved mix of higher-yielding municipal securities was offset by additional premium amortization on mortgage related securities and resulted in no change to the weighted average security portfolio yield between December 31, 2015 and September 30, 2016.

Loans

Total loans at September 30, 2016 were $16.1 billion, up slightly from June 30, 2016, and up $1.3 billion, or 9%, compared to September 30, 2015. Loans to energy-related companies declined approximately $81 million linked quarter. Excluding the energy portfolio, loans would have increased 3% linked-quarter annualized. The Company reported net loan growth during the quarter in areas such as healthcare lending, equipment finance and mortgage lending. These business lines represent targeted growth areas identified as part of the Company’s revenue-generating initiatives.

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

At September 30, 2016, commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $9 billion, an increase of $180 million, or 2%, from December 31, 2015. Included in C&I are $1.4 billion in energy-related loans, which are comprised of credits to both the exploration and production segment and the support services segment. Energy loans comprised 8.7% of total loans at September 30, 2016. The $81 million linked-quarter decrease in the energy portfolio resulted from payoffs and paydowns of approximately $141 million, and charge-offs of approximately $5 million, partially offset by approximately $65 million of draws on existing lines.

The Bank lends mainly to middle-market and smaller commercial entities, although it participates in larger shared-credit loan facilities. Shared national credits funded at September 30, 2016 totaling approximately $2.1 billion, or 1 3% of total loans, were down approximately $102 million from June 30, 2016 and up $43 million from December 31, 2015. Approximately $917 million of shared national credits were with energy-related customers at September 30, 2016, down approximately $62 million from June 30, 2016 and down $39 million from December 31, 2015.

Commercial real estate – income producing loans totaled approximately $2 billion at September 30, 2016, an increase of $437 million, or 28%, from December 31, 2015. Construction and land development loans, totaling approximately $0.9 billion at September 30, 2016, decreased approximately $205 million from December 31, 2015. The year-to-date change in commercial real estate – income producing loans and construction and land development loans partially resulted from the transfer upon completion of a number of construction permanent loans from construction to commercial real estate – income producing.

Residential mortgages and consumer loans decreased $12 million and $32 million, respectively, during the first nine months of 2016.

﻿

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48

Table of Contents

Allowance for Loan Losses and Asset Quality

The Company's total allowance for loan losses was $236.1 million at September 30, 2016, compared to $181.2 million at December 31, 2015. The allowance maintained on the non-purchased credit impaired portion of the loan portfolio totaled $216.4 million, a $9.9 million linked-qua rter increase. The ratio of the allowance to period-end loans was 1.47% at September 30, 2016, compared to 1.41% at June 30, 2016. The third quarter increase in the allowance reflects increases in reserves across all portfolios, including increases of $7 million in e nergy-related loans, $2 million in retail loans and $1 million in non-energy commercial loans.

During the third quarter of 2016, Hancock recorded a total provision for loan losses of $19.0 million, up $1.8 million from $17.2 million in the second quarter of 2016.

Net charge-offs from the non-purchased credit impaired loan portfolio were $9.5 million, or 0.24% of average total loans on an annualized basis, in the third quarter of 2016 compared to $7.8 million, or 0.20% of average total loans in the second quarter of 2016. Increased losses occurred in all portfolios, due to both higher gross charge-offs of $1.1 million and lower recoveries of $0.6 million. Energy losses were slightly higher in third quarter 2016 at $4.4 million compared to $4.0 million in second quarter 2016.

The following table provides a breakout of the Company’s allowance for loan losses for the energy portfolio, allocated by sector at September 30, 2016.

﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
(in millions) |  | Outstanding Balance |  | Allocated Allowance for Loan and Lease Losses |  |  | Allowance for Loan and Lease Losses as a % of Loans
Upstream (reserve-based lending) |  | $ | 458 |  |  | $ | 24 |  |  |  |  | 5.2 | %
Midstream |  |  | 79 |  |  |  | 1 |  |  |  |  | 1.9 |
Support - drilling |  |  | 172 |  |  |  | 25 |  |  |  |  | 14.4 |
Support - nondrilling |  |  | 691 |  |  |  | 68 |  |  |  |  | 9.9 |
Total |  | $ | 1,400 |  |  | $ | 118 |  |  |  |  | 8.5 | %

﻿

Management continues to closely monitor the impact that the sustained decrease in oil and natural gas prices will have on the ability of the Company’s energy-related customers to service their debt. Part of the ongoing monitoring includes a review of customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics. As new information becomes available, additional risk rating downgrades could occur, which could lead to a dditional loan loss provisions, a higher allowance for loan losses, and ad ditional charge-offs. M anagement believe s that any additional losses will be manageable and that capital will remain solid. Based upon information currently available, management estimates that net charge-offs from energy-related credits could approximate $65 million to $95 million over the duration of the cycle, which started in the fourth quarter of 2014. To date, the Company has recorded approximately $30 million in energy-related net charge-offs since the start of the cycle. See Item 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion of the Company’s energy portfolio and its potential impact on the allowance for loan losses.

49

Table of Contents

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) |  | 2016 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |
Allowance for loan losses at beginning of period |  | $ | 226,086 |  | $ | 217,794 |  | $ | 131,087 |  | $ | 181,179 |  | $ | 128,762 |
Loans charged-off: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-purchased credit impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non real estate |  |  | 5,292 |  |  | 4,545 |  |  | 853 |  |  | 27,504 |  |  | 3,068 |
Commercial real estate - owner-occupied |  |  | 461 |  |  | 416 |  |  | 286 |  |  | 1,660 |  |  | 664 |
Total commercial & industrial |  |  | 5,753 |  |  | 4,961 |  |  | 1,139 |  |  | 29,164 |  |  | 3,732 |
Commercial real estate - income producing |  |  | — |  |  | 76 |  |  | 317 |  |  | 191 |  |  | 464 |
Construction and land development |  |  | 235 |  |  | 482 |  |  | 655 |  |  | 827 |  |  | 1,483 |
Residential mortgages |  |  | 316 |  |  | 417 |  |  | 159 |  |  | 908 |  |  | 1,451 |
Consumer |  |  | 6,135 |  |  | 5,425 |  |  | 3,702 |  |  | 17,403 |  |  | 10,431 |
Total non-purchased credit impaired charge-offs |  |  | 12,439 |  |  | 11,361 |  |  | 5,972 |  |  | 48,493 |  |  | 17,561 |
Purchased credit impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non real estate |  |  | — |  |  | — |  |  | 326 |  |  | — |  |  | 1,425 |
Commercial real estate - owner-occupied |  |  | — |  |  | — |  |  | 364 |  |  | 28 |  |  | 379 |
Total commercial & industrial |  |  | — |  |  | — |  |  | 690 |  |  | 28 |  |  | 1,804 |
Commercial real estate - income producing |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 2,353 |
Construction and land development |  |  | — |  |  | — |  |  | 121 |  |  | 18 |  |  | 406 |
Residential mortgages |  |  | 68 |  |  | 23 |  |  | 580 |  |  | 91 |  |  | 748 |
Consumer |  |  | — |  |  | 8 |  |  | — |  |  | 8 |  |  | 140 |
Total purchased credit impaired charge-offs |  |  | 68 |  |  | 31 |  |  | 1,391 |  |  | 146 |  |  | 5,451 |
Total charge-offs |  |  | 12,507 |  |  | 11,392 |  |  | 7,363 |  |  | 48,639 |  |  | 23,012 |
Recoveries of loans previously charged-off: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-purchased credit impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non real estate |  |  | 907 |  |  | 993 |  |  | 538 |  |  | 2,709 |  |  | 2,589 |
Commercial real estate - owner-occupied |  |  | 49 |  |  | 197 |  |  | 114 |  |  | 287 |  |  | 249 |
Total commercial & industrial |  |  | 956 |  |  | 1,190 |  |  | 652 |  |  | 2,996 |  |  | 2,838 |
Commercial real estate - income producing |  |  | 405 |  |  | 124 |  |  | 95 |  |  | 673 |  |  | 386 |
Construction and land development |  |  | 297 |  |  | 520 |  |  | 698 |  |  | 1,422 |  |  | 2,006 |
Residential mortgages |  |  | 17 |  |  | 179 |  |  | 129 |  |  | 497 |  |  | 578 |
Consumer |  |  | 1,233 |  |  | 1,545 |  |  | 927 |  |  | 4,272 |  |  | 3,418 |
Total non-purchased credit impaired recoveries |  |  | 2,908 |  |  | 3,558 |  |  | 2,501 |  |  | 9,860 |  |  | 9,226 |
Purchased credit impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non real estate |  |  | 68 |  |  | 5 |  |  | 1,685 |  |  | 76 |  |  | 1,699 |
Commercial real estate - owner-occupied |  |  | 43 |  |  | 85 |  |  | 472 |  |  | 163 |  |  | 937 |
Total commercial & industrial |  |  | 111 |  |  | 90 |  |  | 2,157 |  |  | 239 |  |  | 2,636 |
Commercial real estate - income producing |  |  | — |  |  | 1 |  |  | 20 |  |  | 2 |  |  | 20 |
Construction and land development |  |  | 45 |  |  | 18 |  |  | 490 |  |  | 98 |  |  | 896 |
Residential mortgages |  |  | 30 |  |  | 2 |  |  | 3 |  |  | 33 |  |  | 5 |
Consumer |  |  | 6 |  |  | 67 |  |  | 49 |  |  | 112 |  |  | 185 |
Total purchased credit impaired recoveries |  |  | 192 |  |  | 178 |  |  | 2,719 |  |  | 484 |  |  | 3,742 |
Total recoveries |  |  | 3,100 |  |  | 3,736 |  |  | 5,220 |  |  | 10,344 |  |  | 12,968 |
Net charge-offs - non-purchased credit impaired loans |  |  | 9,531 |  |  | 7,803 |  |  | 3,471 |  |  | 38,633 |  |  | 8,335 |
Net charge-offs - purchased credit impaired loans |  |  | (124) |  |  | (147) |  |  | (1,328) |  |  | (338) |  |  | 1,709 |
Total net charge-offs |  |  | 9,407 |  |  | 7,656 |  |  | 2,143 |  |  | 38,295 |  |  | 10,044 |
Provision for loan losses before FDIC benefit - purchased credit impaired loans |  |  | (6) |  |  | (1,059) |  |  | 115 |  |  | (3,750) |  |  | (3,370) |
Benefit attributable to FDIC loss share agreement |  |  | (410) |  |  | 1,248 |  |  | (552) |  |  | 3,027 |  |  | 1,984 |
Provision for loan losses non-purchased credit impaired loans |  |  | 19,388 |  |  | 17,007 |  |  | 10,517 |  |  | 96,927 |  |  | 24,228 |
Provision for loan losses, net |  |  | 18,972 |  |  | 17,196 |  |  | 10,080 |  |  | 96,204 |  |  | 22,842 |
Increase (decrease) in FDIC loss share receivable |  |  | 410 |  |  | (1,248) |  |  | 552 |  |  | (3,027) |  |  | (1,984) |
Allowance for loan losses at end of period |  | $ | 236,061 |  | $ | 226,086 |  | $ | 139,576 |  | $ | 236,061 |  | $ | 139,576 |
Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross charge-offs - non-purchased credit impaired to average loans |  |  | 0.31 | % |  | 0.28 | % |  | 0.16 | % |  | 0.41 | % |  | 0.17 | %
Recoveries - non-purchased credit impaired to average loans |  |  | 0.07 | % |  | 0.09 | % |  | 0.07 | % |  | 0.08 | % |  | 0.09 | %
Net charge-offs - non-purchased credit impaired to average loans |  |  | 0.24 | % |  | 0.20 | % |  | 0.09 | % |  | 0.32 | % |  | 0.08 | %
Allowance for loan losses to period-end loans |  |  | 1.47 | % |  | 1.41 | % |  | 0.95 | % |  | 1.47 | % |  | 0.95 | %

﻿

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

﻿

﻿

﻿ |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |
﻿ |  | September 30, |  | December 31, |
(in thousands) |  | 2016 |  | 2015 |
Loans accounted for on a nonaccrual basis: (a) |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 195,807 |  | $ | 83,677 |
Commercial non-real estate - restructured |  |  | 44,491 |  |  | 5,066 |
Total commercial non-real estate |  |  | 240,298 |  |  | 88,743 |
Commercial real estate - owner occupied |  |  | 14,298 |  |  | 8,841 |
Commercial real estate - owner-occupied - restructured |  |  | 1,033 |  |  | 1,160 |
Total commercial real estate - owner-occupied |  |  | 15,331 |  |  | 10,001 |
Total commercial & industrial |  |  | 255,629 |  |  | 98,744 |
Commercial real estate - income producing |  |  | 8,342 |  |  | 10,225 |
Commercial real estate - income producing - restructured |  |  | 976 |  |  | 590 |
Total commercial real estate - income producing |  |  | 9,318 |  |  | 10,815 |
Construction and land development |  |  | 3,927 |  |  | 15,993 |
Construction and land development - restructured |  |  | 1,003 |  |  | 1,301 |
Total construction and land development |  |  | 4,930 |  |  | 17,294 |
Residential mortgage |  |  | 20,488 |  |  | 23,082 |
Residential mortgage - restructured |  |  | 693 |  |  | 717 |
Total residential mortgage |  |  | 21,181 |  |  | 23,799 |
Consumer |  |  | 11,752 |  |  | 9,061 |
Total nonaccrual loans |  | $ | 302,810 |  | $ | 159,713 |
Restructured loans - still accruing: |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 3,938 |  | $ | — |
Commercial real estate - owner occupied |  |  | 572 |  |  | 1,638 |
Total commercial & industrial |  |  | 4,510 |  |  | 1,638 |
Commercial real estate - income producing |  |  | 3,024 |  |  | 2,473 |
Construction and land development |  |  | 19 |  |  | 20 |
Residential mortgage |  |  | 263 |  |  | 106 |
Consumer |  |  | 243 |  |  | 60 |
Total restructured loans - still accruing |  |  | 8,059 |  |  | 4,297 |
Total nonperforming loans |  |  | 310,869 |  |  | 164,010 |
ORE and foreclosed assets |  |  | 19,806 |  |  | 27,133 |
Total nonperforming assets (b) |  | $ | 330,675 |  | $ | 191,143 |
Loans 90 days past due still accruing |  | $ | 4,933 |  | $ | 7,653 |
Total restructured loans |  | $ | 56,255 |  | $ | 13,131 |
Ratios: |  |  |  |  |  |  |
Nonperforming assets to loans plus ORE and foreclosed assets |  |  | 2.06 | % |  | 1.22 | %
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due |  |  | 74.75 | % |  | 105.54 | %
Loans 90 days past due still accruing to loans |  |  | 0.03 | % |  | 0.05 | %

﻿

| (a) |  | Nonaccrual loans and accruing loans past due 90 days or more do not include PCI loans accounted for in pools with an accretable yield.

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

Nonperforming assets totaled $331 million at September 30, 2016, up $6 million from June 30, 2016 and $140 million from December 31, 2015. Nonperforming loans increased approximately $147 million from December 31, 2015, of which approximately $129 million is attributable to the energy portfolio. During the third quarter of 2016, total nonperforming loans increased approximately $9 million while ORE and other foreclosed assets decreased approximately $4 million. Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 2.06% at September 30, 2016, up 4 bps from June 30, 2016, and up 84 bps from December 31, 2015.

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Short-Term Investments

Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors. Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, were $129 million at September 30, 2016. This total was down $24 million from prior quarter and down $437 million from December 31, 2015. These assets are highly volatile on a daily basis depending upon movement in customer loan and deposit accounts. Average short-term investments of $428 million for the third quarter of 2016 were up $19 million compared to the second quarter of 2016, but down $16 million, or 4%, compared to the fourth quarter of 2015. See the Liquidity section above for further discussion regarding the management of its short-term investment portfolio and its impact on the Company’s liquidity in general.

Deposits

Total deposits were $18.9 billion at September 30, 2016, up slightly from June 30, 2016, and up $537 million, or 3%, from December 31, 2015. Total deposits increased $1.4 billion, or 8% from September 30, 2015. Average deposits for the third quarter of 2016 were $18.7 billion, unchanged from the second quarter of 2016 and up $1.4 billion from the third quarter of 2015. The growth is primarily attributable to the deposit growth initiatives implemented during 2015 and, compared to 2015, greater utilization of the Company’s brokered deposits program. Because of seasonality throughout the year, year-over-year comparisons of deposit levels are more useful than those compared to the prior year end.

﻿

Noninterest-bearing demand deposits were $7.5 billion at September 30, 2016, up $392 million, or 5%, linked quarter, and were up $1.5 billion year-over-year. In the fourth quarter of 2015, the Company redesigned its deposit product offerings, resulting in a transfer of approximately $1.2 billion of balances from interest-bearing transaction accounts to noninterest-bearing demand deposits. Management believes that the benefits included in the new suite of consumer products will minimize migration to other interest-bearing products in a rising interest rate environment. Noninterest-bearing demand deposits comprised almost 40% of total deposits at September 30, 2016, compared to 38% at June 30, 2016, and 35% at September 30, 2015.

﻿

Interest-bearing transaction and savings accounts of $6.6 billion at September 30, 2016, decreased $134 million, or 2%, compared to the second quarter. Excluding the $1.2 billion of deposits transferred to noninterest-bearing accounts, these deposits were up almost $500 million compared to September 30, 2015, mainly as a result of the deposit initiatives.

Interest-bearing public fund deposits totaled $2.4 billion at September 30, 2016, up slightly from June 30, 2016. This category was up $141 million, or 6% compared to December 31, 2015 and up $626 million, or 35% compared to September 30, 2015. These deposits are seasonal in nature with normal quarterly fluctuations.

Time deposits, other than public funds, totaled $2.3 billion at September 30, 2016. The $229 million decrease from June 30, 2016 was primarily due to a decrease in brokered CDs. As discussed in the Liquidity section, the Company uses brokered deposits, subject to strict parameters regarding term s and rates, as a short-term funding source.

Short-Term Borrowings

At September 30, 2016, short-term borrowings totaled $1.1 billion, down $19 million from June 30, 2016, as FHLB borrowings in creased $64 million, or 9%, and securities sold under agreements to repurchase decreased $74 million, or 18%. Compared to year-end 2015, s hort-term borrowings were down $348 million, or 24%. FHLB borrowings de creased $161 million, or 18%, and securities sold under agreements to repurchase decreased $178 million, or 35%. S hort-term borrowings at the end of the current quarter were up $27 million from September 30, 2015. Average quarter-to-date short-term borrowings of $1.4 billion in the third quarter of 2016 were relatively flat compared to the second quarter of 2016. Year-to-date, average short-term borrowings in 2016 were up $471 million in order to help fund the $2.2 billion increase in average earning assets. Customer repurchase agreements and FHLB borrowings are the major sources of short-term borrowings. Customer repurchase agreements are offered mainly to commercial customers to assist them with their cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, the amounts available over time can be volatile. FHLB borrowings are funds from the Federal Home Loan Bank that are collateralize d by single family and commercial real estate loans included in the bank’s loan portfolio, subject to specific criteria.

OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

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

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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, 2016 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 |  | $ | 5,821,347 |  | $ | 2,755,772 |  | $ | 1,322,794 |  | $ | 960,599 |  | $ | 782,182
Letters of credit |  |  | 331,919 |  |  | 231,932 |  |  | 81,186 |  |  | 18,801 |  |  | —
Total |  | $ | 6,153,266 |  | $ | 2,987,704 |  | $ | 1,403,980 |  | $ | 979,400 |  | $ | 782,182

﻿

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, except as noted under Goodwill Impairment Testing below.

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.

Goodwill Impairment Testing

﻿

Goodwill, which represents the excess of cost over the fair value of the net assets of an acquired business, is not amortized but is assessed for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. The impairment test compares the estimated fair value of a reporting unit with its net book value. The Company has assigned all goodwill to one reporting unit that represents overall banking operations. The fair value of the reporting unit is based on valuation techniques that market participants would use in an acquisition of the whole unit, such as estimated discounted cash flows, the quoted market price of Hancock’s stock adjusted for a control premium and observable average price-to-earnings and price-to-book multiples of our competitors. If the unit’s fair value is less than its carrying value, an estimate of the implied fair value of the goodwill is compared to the goodwill’s carrying value and any impairment recognized.

﻿

The Company completed its annual impairment test of goodwill as of September 30, 2015 and concluded that there was no impairment of goodwill. We updated our annual test as of December 31, 2015 due to a number of events occurring during the fourth quarter of 2015 indicating the potential for impairment. The Company again concluded there was no impairment (see Critical Accounting Policies and Significant Estimates section of the Company’s Annual Report on Form 10K for the year ended December 31, 2015). Due to the continued challenges in the energy sector, the Company has tested for goodwill impairment quarterly during 2016 with the most recent test as of September 30, 2016. Each test in 2016 resulted in no goodwill impairment.

﻿

Consistent with December 31, 2015, the Company used multiple approaches to measure its fair value at September 30, 2016. These included an income approach using the discounted net present value of estimated future cash flows, a transaction or price-to-book multiple approach using the actual price paid by similar companies in recent acquisition transactions and a market capitalization

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approach using both the Company’s actual market capitalization at September 30, 2016 and an estimated market capitalization using a price-to-earnings multiple based o n the Company’s 2017 forecast.

﻿

The results from each of the approaches were relatively similar with little disparity and were combined and weighted to derive an estimated fair market value for the Company. Equal weightings were as sig ned to each of the four a pproaches. The weighted average of the four approaches resulted in a fair market value approximately 1 6% higher than net book value at September 30, 2016.

﻿

Each of the valuation techniques used by the Company requires significant assumptions. Depending upon the specific approach, assumptions are made concerning the economic environment, expected net interest margins, growth rates, discount rates for cash flows, control premiums, price-to-earnings multiples, and price-to-book multiples. Also, assumptions are made to determine the appropriate individual weighting to be used for each approach in determining the fair market value. Changes to any one of these assumptions could result in significantly different results.

﻿

﻿

Non-GAAP Financial Measures

﻿

Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP measures used to describe Hancock’s performance. A reconciliation of those measures to GAAP measures are provided above within the appropriate section of this Item.

﻿

C onsistent with Securities and Exchange Co mmission Industry Guide 3, the C ompany presents net interest income, net interest margin and efficiency ratios on a fully taxable equiva lent (“te”) basis. The te basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 35% to increase tax-exempt interest income to a taxable-equivalent basis. The C ompany believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.

﻿

Over the past several quarters we have disclosed our focus on strategic initiatives that were designed to replace declining levels of purchase accounting income from acquisitions with improvement in core income, which the Company defines as income excluding net p urchase accounting income. The C ompany presents core income non-GAAP measures including core net interest income and core net interest margin, core revenue and core pre-tax, pre-provision profit. These measures are provided to assist the reader with a better understanding of the Company’s performance period over period as well as providing investors with assistance in understanding the success management has experienced in executing its strategic initiatives.

﻿

We define Core Net Interest Income as net interest income excluding net purchase accounting accretion resulting from the fair market value adjustments related to acquired operations. We define Core Net Interest Margin as reported core net interest income (te), annualized, expressed as a percentage of average earning assets.

﻿

We define Core Revenue as core net interest income (te) and noninterest income less the amortization of the FDIC loss share receivable related to loans acquired in an FDIC assisted transaction.

﻿

We define Core Pre-Tax, Pre-Provision Income as core revenue less noninterest expense, excluding nonoperating items. Management believes that core pre-tax, pre-provision profit is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.

NEW ACCOUNTING PRONOUNCEMENTS

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

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements that we may make include statements regarding balance sheet and revenue growth, the provision for loans losses, loan growth expectations, management’s predictions about charge-offs for loans, including energy related credits, the impact of volatility of oil and gas prices on our energy portfolio, and the downstream impact on businesses that support the energy sector, especially in the Gulf Coast region, deposit trends, credit quality trends, net interest margin trends, future expense levels, success of revenue-generating initiatives, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as accretion levels, possible repurchases of shares under stock buyback programs, and the financial impact of regulatory requirements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and

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“could.” Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 and in other periodic reports that we file with the SEC.

﻿

Ite m 3. Quantitative and Qualitative Disclosures About Market Risk

Our net income is materially dependent on our net interest income. The Company’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.

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

The table below presents the results of simulations run as of September 30, 2016 for year 1 and year 2, assuming the indicated instantaneous and sustained parallel shift in the yield curve at the measurement date. These results indicate that we are slightly asset sensitive compared to the stable rate environment assumed for the base case.

﻿

﻿ |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |
﻿ | Net Interest Income (te) at Risk
﻿ |  |  | Estimated
﻿ | Change in |  | increase (decrease)
﻿ | interest rate |  | in net interest income (te)
﻿ | (basis points) |  | Year 1 |  | Year 2
﻿ | +100 |  | 2.05 | % |  | 2.78 | %
﻿ | +200 |  | 3.69 | % |  | 4.57 | %
﻿ | +300 |  | 4.81 | % |  | 5.38 | %

﻿

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

The foregoing disclosures related to our market risk should be read in conjunction with our audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2015 included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 4. Co ntrols and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2016, the Company’s disclosure controls and procedures were effective.

Our management, including the Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the nine-month period ended September 30, 2016, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

﻿

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There were no changes to the risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

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.

On August 28, 2015 the Company approved a stock purchase program authorizing the repurchase of up to 5% of its outstanding stock, or approximately 3.9 million shares, until September 2016. The plan expired on September 30, 2016. Under this plan, the Company repurchased 741,393 shares of its common stock at an average price of $27.44 per share. There were no share repurchases under this plan in 2016.

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Item 6. Exhibits.

(a) Exhibits:

﻿

﻿

﻿ |  |
﻿ |  |
Exhibit |  |
Number |  | Description
3.1 |  | Composite Articles of the Company (filed as Exhibit 2.1 to the Company's Form 10-K for the year ended December 31, 2014 (file No. 01-36872) filed with the Commission on February 27, 2015 and incorporated herein by reference.
3.2 |  | Amended and Restated Bylaws, dated October 29, 2015 (filed as Exhibit 3.2 to the Company's Form 8-K (File No. 0-13089) filed with the Commission on November 4, 2015 and incorporated herein by reference.
10.1 |  | Separation and Restrictive Covenant Agreement, between the Company and Edward G. Francis, dated April 7, 2016 (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 2016 (file No. 01-36872) filed with the Commission on May 9, 2016 and incorporated herein by reference).
10.2 |  | First Amendment to Credit Agreement and Waiver, dated May 3, 2016 (filed as Exhibit 10.4 to the Company's Form 10-Q for the quarter ended March 31, 2016 (file No. 01-36872) filed with the Commission on May 9, 2016 and incorporated herein by reference).
31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 |  | XBRL Interactive Data.

﻿

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SIG NATURES

﻿

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

﻿

﻿ |  |
﻿ | Hancock Holding Company
﻿ |  |
﻿ | By: | /s/ John M. Hairston
﻿ |  | John M. Hairston
﻿ |  | President & Chief Executive Officer
﻿ |  | (Principal Executive Officer)
﻿ |  |
﻿ |  | /s/ Michael M. Achary
﻿ |  | Michael M. Achary
﻿ |  | Chief Financial Officer
﻿ |  | (Principal Financial Officer)
﻿ |  |
﻿ | Date: | November 8, 2016

﻿

﻿

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