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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from to

Commission file number: 001-36872

HANCOCK WHITNEY CORPORATION

(Exact name of registrant as specified in its charter)

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

(228) 868-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

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

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

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

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

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

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

85,769,278 common shares were outstanding as of July 31, 2019.

Table of Contents

Hancock Whitney Corporation

Index

Part I. Financial Information | Page Number
ITEM 1. | Financial Statements | 4
| Consolidated Balance Sheets (unaudited) – June 30, 2019 and December 31, 2018 | 4
| Consolidated Statements of Income (unaudited) – Three and Six Months Ended June 30, 2019 and 2018 | 5
| Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended June 30, 2019 and 2018 | 6
| Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Three and Six Months Ended June 30, 2019 and 2018 | 7
| Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2019 and 2018 | 8
| Notes to Consolidated Financial Statements (unaudited) – June 30, 2019 and 2018 | 9
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 36
ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 59
ITEM 4. | Controls and Procedures | 59
Part II. Other Information |
ITEM 1. | Legal Proceedings | 61
ITEM 1A. | Risk Factors | 61
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 61
ITEM 3. | Default on Senior Securities | N/A
ITEM 4. | Mine Safety Disclosures | N/A
ITEM 5. | Other Information | N/A
ITEM 6. | Exhibits | 61
Signatures | 62

2

Table of Contents

Hancock Whitney Corporation

Glossary of Defined Terms

Entities:

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

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

Company – Hancock Whitney Corporation and its wholly-owned subsidiaries

Parent – Hancock Whitney Corporation, exclusive of its subsidiaries

Bank – Hancock Whitney Bank

Other Terms:

AFS – available for sale securities

AOCI – accumulated other comprehensive income or loss

ALLL – allowance for loan and lease losses

ASC – Accounting Standards Codification

ASU – Accounting Standards Update

ATM - automated teller machine

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

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

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

BOLI – Bank-owned life insurance

bp(s) – Basis point(s)

C&I – commercial and industrial loans

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

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

CD – certificate of deposit

CDE – Community Development Entity

CMO – Collateralized Mortgage Obligation

FASB – Financial Accounting Standards Board

FDIC – Federal Deposit Insurance Corporation

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

FHLB – Federal Home Loan Bank

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

HFC – Harrison Finance Company, a former consumer finance subsidiary

HTM – held to maturity securities

LIBOR – London Interbank Offered Rate

LIHTC – Low Income Housing Tax Credit

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

MidSouth – MidSouth Bancorp, Inc., an entity the Company has agreed to acquire under an Agreement and Plan of Merger dated April 30, 2019

NAICS – North American Industry Classification System

NII – Net interest income

n/m – not meaningful

OCI – other comprehensive income

OFI – Louisiana Office of Financial Institutions

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

PCI – purchased credit impaired loans

Repos – securities sold under agreements to repurchase

SEC – U.S. Securities and Exchange Commission

Securities Act – Securities Act of 1933, as amended

Tax Act – Tax Cuts and Jobs Act of 2017

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

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

TSR – total shareholder return

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

3

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Hancock Whitney Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

|  | June 30, |  |  | December 31, |
(in thousands, except per share data) |  | 2019 |  |  | 2018 |
ASSETS |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 365,152 |  |  | $ | 383,372 |
Interest-bearing bank deposits |  |  | 150,765 |  |  |  | 110,579 |
Federal funds sold |  |  | 297 |  |  |  | 515 |
Securities available for sale, at fair value (amortized cost of $2,758,723 and $2,755,806) |  |  | 2,790,468 |  |  |  | 2,691,037 |
Securities held to maturity (fair value of $2,979,401 and $2,935,856) |  |  | 2,935,267 |  |  |  | 2,979,547 |
Loans held for sale |  |  | 36,150 |  |  |  | 28,150 |
Loans |  |  | 20,175,812 |  |  |  | 20,026,411 |
Less: allowance for loan losses |  |  | (195,625 | ) |  |  | (194,514 | )
Loans, net |  |  | 19,980,187 |  |  |  | 19,831,897 |
Property and equipment, net of accumulated depreciation of $238,051 and $225,969 |  |  | 360,298 |  |  |  | 353,668 |
Right of use assets, net of accumulated amortization of $6,172 |  |  | 113,319 |  |  |  | — |
Prepaid expenses |  |  | 40,701 |  |  |  | 35,047 |
Other real estate and foreclosed assets, net |  |  | 27,520 |  |  |  | 26,270 |
Accrued interest receivable |  |  | 88,391 |  |  |  | 86,681 |
Goodwill |  |  | 792,084 |  |  |  | 790,972 |
Other intangible assets, net |  |  | 85,967 |  |  |  | 96,151 |
Life insurance contracts |  |  | 591,287 |  |  |  | 549,300 |
Deferred tax asset, net |  |  | — |  |  |  | 22,967 |
Funded pension assets, net |  |  | 172,946 |  |  |  | 65,125 |
Other assets |  |  | 231,064 |  |  |  | 184,629 |
Total assets |  | $ | 28,761,863 |  |  | $ | 28,235,907 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |
Deposits |  |  |  |  |  |  |  |
Noninterest-bearing |  | $ | 8,114,632 |  |  | $ | 8,499,027 |
Interest-bearing |  |  | 15,121,410 |  |  |  | 14,651,158 |
Total deposits |  |  | 23,236,042 |  |  |  | 23,150,185 |
Short-term borrowings |  |  | 1,641,598 |  |  |  | 1,589,128 |
Long-term debt |  |  | 232,754 |  |  |  | 224,993 |
Accrued interest payable |  |  | 19,060 |  |  |  | 12,267 |
Lease liabilities |  |  | 128,718 |  |  |  | — |
Deferred tax liability, net |  |  | 33,046 |  |  |  | — |
Other liabilities |  |  | 151,730 |  |  |  | 177,994 |
Total liabilities |  |  | 25,442,948 |  |  |  | 25,154,567 |
Stockholders' equity: |  |  |  |  |  |  |  |
Common stock |  |  | 292,716 |  |  |  | 292,716 |
Capital surplus |  |  | 1,737,492 |  |  |  | 1,725,741 |
Retained earnings |  |  | 1,363,910 |  |  |  | 1,243,592 |
Accumulated other comprehensive loss, net |  |  | (75,203 | ) |  |  | (180,709 | )
Total stockholders' equity |  |  | 3,318,915 |  |  |  | 3,081,340 |
Total liabilities and stockholders' equity |  | $ | 28,761,863 |  |  | $ | 28,235,907 |
Preferred shares authorized (par value of $20.00 per share) |  |  | 50,000 |  |  |  | 50,000 |
Preferred shares issued and outstanding |  |  | — |  |  |  | — |
Common shares authorized (par value of $3.33 per share) |  |  | 350,000 |  |  |  | 350,000 |
Common shares issued |  |  | 87,903 |  |  |  | 87,903 |
Common shares outstanding |  |  | 85,759 |  |  |  | 85,643 |

See notes to unaudited consolidated financial statements.

4

Table of Contents

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | June 30, |
(in thousands, except per share data) |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Interest income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 243,233 |  |  | $ | 215,161 |  |  | $ | 481,515 |  |  | $ | 421,008 |
Loans held for sale |  |  | 344 |  |  |  | 295 |  |  |  | 597 |  |  |  | 516 |
Securities-taxable |  |  | 30,244 |  |  |  | 30,783 |  |  |  | 61,383 |  |  |  | 60,084 |
Securities-tax exempt |  |  | 5,211 |  |  |  | 5,490 |  |  |  | 10,657 |  |  |  | 11,027 |
Short-term investments |  |  | 1,346 |  |  |  | 575 |  |  |  | 2,509 |  |  |  | 1,064 |
Total interest income |  |  | 280,378 |  |  |  | 252,304 |  |  |  | 556,661 |  |  |  | 493,699 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 49,843 |  |  |  | 29,870 |  |  |  | 95,981 |  |  |  | 56,829 |
Short-term borrowings |  |  | 7,847 |  |  |  | 7,416 |  |  |  | 15,929 |  |  |  | 12,767 |
Long-term debt |  |  | 2,820 |  |  |  | 3,471 |  |  |  | 5,629 |  |  |  | 6,892 |
Total interest expense |  |  | 60,510 |  |  |  | 40,757 |  |  |  | 117,539 |  |  |  | 76,488 |
Net interest income |  |  | 219,868 |  |  |  | 211,547 |  |  |  | 439,122 |  |  |  | 417,211 |
Provision for loan losses |  |  | 8,088 |  |  |  | 8,891 |  |  |  | 26,131 |  |  |  | 21,144 |
Net interest income after provision for loan losses |  |  | 211,780 |  |  |  | 202,656 |  |  |  | 412,991 |  |  |  | 396,067 |
Noninterest income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  |  | 20,723 |  |  |  | 20,981 |  |  |  | 41,090 |  |  |  | 42,429 |
Trust fees |  |  | 15,904 |  |  |  | 11,653 |  |  |  | 31,028 |  |  |  | 22,988 |
Bank card and ATM fees |  |  | 16,619 |  |  |  | 15,464 |  |  |  | 31,909 |  |  |  | 29,922 |
Investment and annuity fees and insurance commissions |  |  | 6,591 |  |  |  | 6,264 |  |  |  | 13,119 |  |  |  | 12,389 |
Secondary mortgage market operations |  |  | 4,433 |  |  |  | 3,965 |  |  |  | 8,159 |  |  |  | 7,366 |
Other income |  |  | 14,980 |  |  |  | 10,505 |  |  |  | 24,448 |  |  |  | 19,990 |
Total noninterest income |  |  | 79,250 |  |  |  | 68,832 |  |  |  | 149,753 |  |  |  | 135,084 |
Noninterest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation expense |  |  | 87,747 |  |  |  | 79,885 |  |  |  | 171,715 |  |  |  | 159,985 |
Employee benefits |  |  | 18,888 |  |  |  | 17,358 |  |  |  | 38,618 |  |  |  | 37,232 |
Personnel expense |  |  | 106,635 |  |  |  | 97,243 |  |  |  | 210,333 |  |  |  | 197,217 |
Net occupancy expense |  |  | 12,961 |  |  |  | 12,316 |  |  |  | 24,945 |  |  |  | 23,326 |
Equipment expense |  |  | 4,342 |  |  |  | 4,262 |  |  |  | 9,021 |  |  |  | 7,808 |
Data processing expense |  |  | 20,088 |  |  |  | 18,273 |  |  |  | 39,419 |  |  |  | 34,722 |
Professional services expense |  |  | 9,665 |  |  |  | 13,381 |  |  |  | 17,833 |  |  |  | 22,636 |
Amortization of intangible assets |  |  | 5,047 |  |  |  | 5,322 |  |  |  | 10,185 |  |  |  | 10,940 |
Deposit insurance and regulatory fees |  |  | 4,755 |  |  |  | 8,376 |  |  |  | 10,161 |  |  |  | 16,324 |
Other real estate (income) expense |  |  | 395 |  |  |  | (289 | ) |  |  | (596 | ) |  |  | (79 | )
Other expense |  |  | 19,679 |  |  |  | 25,518 |  |  |  | 37,966 |  |  |  | 42,299 |
Total noninterest expense |  |  | 183,567 |  |  |  | 184,402 |  |  |  | 359,267 |  |  |  | 355,193 |
Income before income taxes |  |  | 107,463 |  |  |  | 87,086 |  |  |  | 203,477 |  |  |  | 175,958 |
Income taxes |  |  | 19,186 |  |  |  | 15,909 |  |  |  | 36,036 |  |  |  | 32,306 |
Net income |  | $ | 88,277 |  |  | $ | 71,177 |  |  | $ | 167,441 |  |  | $ | 143,652 |
Earnings per common share-basic |  | $ | 1.01 |  |  | $ | 0.82 |  |  | $ | 1.92 |  |  | $ | 1.65 |
Earnings per common share-diluted |  | $ | 1.01 |  |  | $ | 0.82 |  |  | $ | 1.92 |  |  | $ | 1.65 |
Dividends paid per share |  | $ | 0.27 |  |  | $ | 0.24 |  |  | $ | 0.54 |  |  | $ | 0.48 |
Weighted average shares outstanding-basic |  |  | 85,728 |  |  |  | 85,305 |  |  |  | 85,708 |  |  |  | 85,273 |
Weighted average shares outstanding-diluted |  |  | 85,835 |  |  |  | 85,483 |  |  |  | 85,810 |  |  |  | 85,451 |

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net income |  | $ | 88,277 |  |  | $ | 71,177 |  |  | $ | 167,441 |  |  | $ | 143,652 |
Other comprehensive income/loss before income taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in unrealized gain/loss on securities available for sale and cash flow hedges |  |  | 69,225 |  |  |  | (23,409 | ) |  |  | 126,468 |  |  |  | (85,653 | )
Reclassification of net losses realized and included in earnings |  |  | 3,984 |  |  |  | 2,217 |  |  |  | 8,203 |  |  |  | 4,013 |
Other Valuation Adjustments for employee benefit plan |  |  | — |  |  |  | (9,039 | ) |  |  | — |  |  |  | (9,039 | )
Amortization of unrealized net loss on securities transferred to held to maturity |  |  | 890 |  |  |  | 925 |  |  |  | 1,481 |  |  |  | 1,680 |
Other comprehensive income/loss before income taxes |  |  | 74,099 |  |  |  | (29,306 | ) |  |  | 136,152 |  |  |  | (88,999 | )
Income tax expense (benefit) |  |  | 16,793 |  |  |  | (6,646 | ) |  |  | 30,646 |  |  |  | (20,192 | )
Other comprehensive income/loss net of income taxes |  |  | 57,306 |  |  |  | (22,660 | ) |  |  | 105,506 |  |  |  | (68,807 | )
Comprehensive income |  | $ | 145,583 |  |  | $ | 48,517 |  |  | $ | 272,947 |  |  | $ | 74,845 |

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

Three Months Ended June 30, 2019 and 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |
|  | Common Stock |  |  |  |  |  |  |  |  |  |  | Other |  |  |  |  |
(in thousands, except per share data) |  | Shares Issued |  |  | Amount |  |  | Capital Surplus |  |  | Retained Earnings |  |  | Comprehensive Loss, Net |  |  | Total |
Balance, March 31, 2019 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,731,148 |  |  | $ | 1,299,220 |  |  | $ | (132,509 | ) |  | $ | 3,190,575 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 88,277 |  |  |  | — |  |  |  | 88,277 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 57,306 |  |  |  | 57,306 |
Comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 88,277 |  |  |  | 57,306 |  |  |  | 145,583 |
Cash dividends declared ($0.27 per common share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (23,593 | ) |  |  | — |  |  |  | (23,593 | )
Common stock activity, long-term incentive plan |  |  | — |  |  |  | — |  |  |  | 5,420 |  |  |  | 6 |  |  |  | — |  |  |  | 5,426 |
Issuance of stock from dividend reinvestment and stock purchase plans |  |  | — |  |  |  | — |  |  |  | 924 |  |  |  | — |  |  |  | — |  |  |  | 924 |
Balance, June 30, 2019 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,737,492 |  |  | $ | 1,363,910 |  |  | $ | (75,203 | ) |  | $ | 3,318,915 |
Balance, March 31, 2018 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,723,689 |  |  | $ | 1,060,182 |  |  | $ | (180,549 | ) |  | $ | 2,896,038 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 71,177 |  |  |  | — |  |  |  | 71,177 |
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (22,660 | ) |  |  | (22,660 | )
Comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 71,177 |  |  |  | (22,660 | ) |  |  | 48,517 |
Cash dividends declared ($0.24 per common share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (20,894 | ) |  |  | — |  |  |  | (20,894 | )
Common stock activity, long-term incentive plan |  |  | — |  |  |  | — |  |  |  | 5,044 |  |  |  | 41 |  |  |  | — |  |  |  | 5,085 |
Issuance of stock from dividend reinvestment and stock purchase plans |  |  | — |  |  |  | — |  |  |  | 809 |  |  |  | — |  |  |  | — |  |  |  | 809 |
Balance, June 30, 2018 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,729,542 |  |  | $ | 1,110,506 |  |  | $ | (203,209 | ) |  | $ | 2,929,555 |
Six Months Ended June 30, 2019 and 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |
|  | Common Stock |  |  |  |  |  |  |  |  |  |  | Other |  |  |  |  |
(in thousands, except per share data) |  | Shares Issued |  |  | Amount |  |  | Capital Surplus |  |  | Retained Earnings |  |  | Comprehensive Loss, Net |  |  | Total |
Balance, December 31, 2018 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,725,741 |  |  | $ | 1,243,592 |  |  | $ | (180,709 | ) |  | $ | 3,081,340 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 167,441 |  |  |  | — |  |  |  | 167,441 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 105,506 |  |  |  | 105,506 |
Comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 167,441 |  |  |  | 105,506 |  |  |  | 272,947 |
Cash dividends declared ($0.54 per common share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (47,174 | ) |  |  | — |  |  |  | (47,174 | )
Common stock activity, long-term incentive plan |  |  | — |  |  |  | — |  |  |  | 9,948 |  |  |  | 51 |  |  |  | — |  |  |  | 9,999 |
Issuance of stock from dividend reinvestment and stock purchase plans |  |  | — |  |  |  | — |  |  |  | 1,803 |  |  |  | — |  |  |  | — |  |  |  | 1,803 |
Balance, June 30, 2019 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,737,492 |  |  | $ | 1,363,910 |  |  | $ | (75,203 | ) |  | $ | 3,318,915 |
Balance, December 31, 2017 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,718,117 |  |  | $ | 1,008,518 |  |  | $ | (134,402 | ) |  | $ | 2,884,949 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 143,652 |  |  |  | — |  |  |  | 143,652 |
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (68,807 | ) |  |  | (68,807 | )
Comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 143,652 |  |  |  | (68,807 | ) |  |  | 74,845 |
Cash dividends declared ($0.48 per common share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (41,775 | ) |  |  | — |  |  |  | (41,775 | )
Common stock activity, long-term incentive plan |  |  | — |  |  |  | — |  |  |  | 9,779 |  |  |  | 111 |  |  |  | — |  |  |  | 9,890 |
Issuance of stock from dividend reinvestment and stock purchase plans |  |  | — |  |  |  | — |  |  |  | 1,646 |  |  |  | — |  |  |  | — |  |  |  | 1,646 |
Balance, June 30, 2018 |  |  | 87,903 |  |  | $ | 292,716 |  |  | $ | 1,729,542 |  |  | $ | 1,110,506 |  |  | $ | (203,209 | ) |  | $ | 2,929,555 |

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

|  | Six Months Ended |
|  | June 30, |
(in thousands) |  | 2019 |  |  | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net income |  | $ | 167,441 |  |  | $ | 143,652 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 15,169 |  |  |  | 13,019 |
Provision for loan losses |  |  | 26,131 |  |  |  | 21,144 |
Gain on other real estate owned |  |  | (1,093 | ) |  |  | (266 | )
Deferred tax expense |  |  | 24,573 |  |  |  | 21,361 |
Increase in cash surrender value of life insurance contracts |  |  | (6,896 | ) |  |  | (2,621 | )
(Gain) loss on disposal of other assets |  |  | (81 | ) |  |  | 1,501 |
Loss on sale of business |  |  | — |  |  |  | 1,145 |
Net (increase) decrease in loans held for sale |  |  | (7,998 | ) |  |  | 4,299 |
Net amortization of securities premium/discount |  |  | 14,628 |  |  |  | 16,913 |
Amortization of intangible assets |  |  | 10,185 |  |  |  | 10,940 |
Stock-based compensation expense |  |  | 10,368 |  |  |  | 9,821 |
Contribution to pension plan |  |  | (100,000 | ) |  |  | — |
Decrease in interest payable and other liabilities |  |  | (20,825 | ) |  |  | (22,397 | )
Decrease in payable to FDIC for loan servicing |  |  | — |  |  |  | (11,113 | )
(Increase) decrease in other assets |  |  | (183 | ) |  |  | 13,074 |
Other, net |  |  | (2,613 | ) |  |  | (307 | )
Net cash provided by operating activities |  |  | 128,806 |  |  |  | 220,165 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Proceeds from maturities of securities available for sale |  |  | 125,154 |  |  |  | 168,186 |
Purchases of securities available for sale |  |  | (133,992 | ) |  |  | (318,786 | )
Proceeds from maturities of securities held to maturity |  |  | 191,553 |  |  |  | 178,625 |
Purchases of securities held to maturity |  |  | (154,498 | ) |  |  | (340,508 | )
Net increase in short-term investments |  |  | (39,968 | ) |  |  | (11,826 | )
Proceeds from sales of loans and leases |  |  | 100,751 |  |  |  | 32,003 |
Net increase in loans |  |  | (278,834 | ) |  |  | (504,866 | )
Purchase of life insurance contracts |  |  | (32,788 | ) |  |  | (1,601 | )
Purchases of property and equipment |  |  | (22,718 | ) |  |  | (18,116 | )
Proceeds from sales of property and equipment |  |  | 202 |  |  |  | 42 |
Proceeds from sales of other real estate |  |  | 6,134 |  |  |  | 8,010 |
Final cash settlement for acquisition of business |  |  | (1,112 | ) |  |  | — |
Proceeds from the sale of business, net of cash sold |  |  | — |  |  |  | 77,648 |
Other, net |  |  | (10,887 | ) |  |  | (34,241 | )
Net cash used in investing activities |  |  | (251,003 | ) |  |  | (765,430 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Net increase (decrease) in deposits |  |  | 85,857 |  |  |  | (17,746 | )
Net increase in short-term borrowings |  |  | 52,470 |  |  |  | 610,300 |
Repayments of long-term debt |  |  | (151 | ) |  |  | (39,817 | )
Net proceeds from issuance of long-term debt |  |  | 11,649 |  |  |  | 83 |
Dividends paid |  |  | (47,174 | ) |  |  | (41,775 | )
Payroll tax remitted on net share settlement of equity awards |  |  | (845 | ) |  |  | (415 | )
Proceeds from exercise of stock options |  |  | 368 |  |  |  | 1,113 |
Proceeds from dividend reinvestment and stock purchase plans |  |  | 1,803 |  |  |  | 1,646 |
Net cash provided by financing activities |  |  | 103,977 |  |  |  | 513,389 |
NET DECREASE IN CASH AND DUE FROM BANKS |  |  | (18,220 | ) |  |  | (31,876 | )
CASH AND DUE FROM BANKS, BEGINNING |  |  | 383,372 |  |  |  | 386,948 |
CASH AND DUE FROM BANKS, ENDING |  | $ | 365,152 |  |  | $ | 355,072 |
SUPPLEMENTAL INFORMATION FOR NON-CASH |  |  |  |  |  |  |  |
INVESTING AND FINANCING ACTIVITIES |  |  |  |  |  |  |  |
Assets acquired in settlement of loans |  | $ | 6,070 |  |  | $ | 2,911 |

See notes to unaudited consolidated financial statements.

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HANCOCK WHITNEY CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements include the accounts of Hancock Whitney Corporation and all other entities in which it has a controlling interest (the “Company”). The financial statements include all adjustments that are, in the opinion of management, necessary to fairly state the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form 10-Q. Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted in this Quarterly Report on Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

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

Use of Estimates

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

Critical Accounting Policies and Estimates

There were no material changes or developments during the reporting period with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018. Refer to Note 16 – Recent Accounting Pronouncements for a discussion of accounting standards adopted during the six months ended June 30, 2019.

2. Business Combinations

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

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

Identifiable intangible assets include customer relationships that are being amortized using an accelerated method based on forecasted cash flows over a useful life of approximately 17 years. Goodwill represents the excess of the fair value of net liabilities assumed over the consideration received. It is comprised of estimated future economic benefits arising from the transaction that cannot be individually identified or do not qualify for separate recognition. These benefits include expanded presence in existing markets and entry into new markets, and expected earnings streams and operational efficiencies that the Company believes will result from this business combination. The tax basis of the goodwill is deductible for federal income tax purposes.

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The following table presents the change in the Company’s goodwill during the year ended December 31, 2018 and the six months ended June 30, 2019.

(in thousands) |  |  |  |
Goodwill balance at December 31, 2017 |  | $ | 745,523 |
Initial goodwill recorded - acquisition of trust and asset management business |  |  | 45,634 |
Measurement period adjustments - acquisition of trust and asset management business |  |  | (185 | )
Goodwill balance at December 31, 2018 |  | $ | 790,972 |
Final settlement of cash consideration - acquisition of trust and asset management business |  |  | 1,112 |
Goodwill balance at June 30, 2019 |  | $ | 792,084 |

The acquired trust and asset management business added $10.1 million in trust fee revenue and $9.8 million of expense to the Company’s results of operations for the six months ended June 30, 2019. The results are not material to the Company’s results of operations and, as such, supplemental proforma financial information for the six months ended June 30, 2018 is not presented. During the six months ended June 30, 2018, the Company incurred acquisition related costs of approximately $1.9 million.

Pending Transaction

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

3. Securities

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

Securities Available for Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | June 30, 2019 |  |  | December 31, 2018 |
|  |  |  |  |  | Gross |  |  | Gross |  |  |  |  |  |  |  |  |  |  | Gross |  |  | Gross |  |  |  |  |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |  |  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |  |  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
U.S. Treasury and government agency securities |  | $ | 80,935 |  |  |  | 1,078 |  |  |  | 149 |  |  | $ | 81,864 |  |  | $ | 74,339 |  |  | $ | — |  |  | $ | 2,633 |  |  | $ | 71,706 |
Municipal obligations |  |  | 244,600 |  |  |  | 4,744 |  |  |  | 3 |  |  |  | 249,341 |  |  |  | 246,713 |  |  |  | 360 |  |  |  | 6,646 |  |  |  | 240,427 |
Residential mortgage-backed securities |  |  | 1,357,580 |  |  |  | 16,847 |  |  |  | 6,776 |  |  |  | 1,367,651 |  |  |  | 1,468,912 |  |  |  | 4,284 |  |  |  | 29,794 |  |  |  | 1,443,402 |
Commercial mortgage-backed securities |  |  | 919,756 |  |  |  | 17,199 |  |  |  | 2,380 |  |  |  | 934,575 |  |  |  | 799,060 |  |  |  | 1,953 |  |  |  | 30,936 |  |  |  | 770,077 |
Collateralized mortgage obligations |  |  | 152,352 |  |  |  | 1,463 |  |  |  | 278 |  |  |  | 153,537 |  |  |  | 163,282 |  |  |  | 903 |  |  |  | 2,260 |  |  |  | 161,925 |
Corporate debt securities |  |  | 3,500 |  |  |  | — |  |  |  | — |  |  |  | 3,500 |  |  |  | 3,500 |  |  |  | — |  |  |  | — |  |  |  | 3,500 |
﻿ |  | $ | 2,758,723 |  |  | $ | 41,331 |  |  | $ | 9,586 |  |  | $ | 2,790,468 |  |  | $ | 2,755,806 |  |  | $ | 7,500 |  |  | $ | 72,269 |  |  | $ | 2,691,037 |

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Securities Held to Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | June 30, 2019 |  |  | December 31, 2018 |
|  |  |  |  |  | Gross |  |  | Gross |  |  |  |  |  |  |  |  |  |  | Gross |  |  | Gross |  |  |  |  |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |  |  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |  |  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
U.S. Treasury and government agency securities |  | $ | 50,000 |  |  |  | — |  |  |  | 119 |  |  | $ | 49,881 |  |  | $ | 50,000 |  |  | $ | — |  |  | $ | 478 |  |  | $ | 49,522 |
Municipal obligations |  |  | 653,105 |  |  |  | 21,047 |  |  |  | 86 |  |  |  | 674,066 |  |  |  | 688,201 |  |  |  | 2,347 |  |  |  | 9,503 |  |  |  | 681,045 |
Residential mortgage-backed securities |  |  | 582,429 |  |  |  | 9,126 |  |  |  | 791 |  |  |  | 590,764 |  |  |  | 640,393 |  |  |  | 1,461 |  |  |  | 6,117 |  |  |  | 635,737 |
Commercial mortgage-backed securities |  |  | 511,138 |  |  |  | 11,685 |  |  |  | 619 |  |  |  | 522,204 |  |  |  | 357,175 |  |  |  | 376 |  |  |  | 10,882 |  |  |  | 346,669 |
Collateralized mortgage obligations |  |  | 1,138,595 |  |  |  | 7,720 |  |  |  | 3,829 |  |  |  | 1,142,486 |  |  |  | 1,243,778 |  |  |  | 1,598 |  |  |  | 22,493 |  |  |  | 1,222,883 |
﻿ |  | $ | 2,935,267 |  |  | $ | 49,578 |  |  | $ | 5,444 |  |  | $ | 2,979,401 |  |  | $ | 2,979,547 |  |  | $ | 5,782 |  |  | $ | 49,473 |  |  | $ | 2,935,856 |

The following tables present the amortized cost and estimated fair value of debt securities available for sale and held to maturity at June 30, 2019 by contractual maturity. Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.

Debt Securities Available for Sale |  | Amortized |  |  | Fair |
(in thousands) |  | Cost |  |  | Value |
Due in one year or less |  | $ | 190 |  |  | $ | 194 |
Due after one year through five years |  |  | 235,774 |  |  |  | 239,806 |
Due after five years through ten years |  |  | 1,178,941 |  |  |  | 1,198,484 |
Due after ten years |  |  | 1,343,818 |  |  |  | 1,351,984 |
Total available for sale debt securities |  | $ | 2,758,723 |  |  | $ | 2,790,468 |

Debt Securities Held to Maturity |  | Amortized |  |  | Fair |
(in thousands) |  | Cost |  |  | Value |
Due in one year or less |  | $ | 62,394 |  |  | $ | 62,356 |
Due after one year through five years |  |  | 92,045 |  |  |  | 93,495 |
Due after five years through ten years |  |  | 1,490,042 |  |  |  | 1,525,907 |
Due after ten years |  |  | 1,290,786 |  |  |  | 1,297,643 |
Total held to maturity securities |  | $ | 2,935,267 |  |  | $ | 2,979,401 |

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

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

Available for Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
June 30, 2019 |  | Losses < 12 months |  |  | Losses 12 months or > |  |  | Total |
(in thousands) |  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |
U.S. Treasury and government agency securities |  | $ | — |  |  | $ | — |  |  | $ | 21,215 |  |  |  | 149 |  |  | $ | 21,215 |  |  | $ | 149 |
Municipal obligations |  |  | 2,292 |  |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | 2,292 |  |  |  | 3 |
Residential mortgage-backed securities |  |  | 1 |  |  |  | — |  |  |  | 689,726 |  |  |  | 6,776 |  |  |  | 689,727 |  |  |  | 6,776 |
Commercial mortgage-backed securities |  |  | 22,112 |  |  |  | 12 |  |  |  | 367,211 |  |  |  | 2,368 |  |  |  | 389,323 |  |  |  | 2,380 |
Collateralized mortgage obligations |  |  | — |  |  |  | — |  |  |  | 57,800 |  |  |  | 278 |  |  |  | 57,800 |  |  |  | 278 |
Other debt obligation |  |  | 700 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 700 |  |  |  | — |
﻿ |  | $ | 25,105 |  |  | $ | 15 |  |  | $ | 1,135,952 |  |  | $ | 9,571 |  |  | $ | 1,161,057 |  |  | $ | 9,586 |

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

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

Held to maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
June 30, 2019 |  | Losses < 12 months |  |  | Losses 12 months or > |  |  | Total |
﻿ |  |  |  |  |  | Gross |  |  |  |  |  |  | Gross |  |  |  |  |  |  | Gross |
﻿ |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |
(in thousands) |  | Value |  |  | Losses |  |  | Value |  |  | Losses |  |  | Value |  |  | Losses |
U.S. Treasury and government agency securities |  | $ | — |  |  | $ | — |  |  | $ | 49,881 |  |  | $ | 119 |  |  | $ | 49,881 |  |  | $ | 119 |
Municipal obligations |  |  | 3,027 |  |  |  | 27 |  |  |  | 18,972 |  |  |  | 59 |  |  |  | 21,999 |  |  |  | 86 |
Residential mortgage-backed securities |  |  | — |  |  |  | — |  |  |  | 177,953 |  |  |  | 791 |  |  |  | 177,953 |  |  |  | 791 |
Commercial mortgage-backed securities |  |  | — |  |  |  | — |  |  |  | 74,946 |  |  |  | 619 |  |  |  | 74,946 |  |  |  | 619 |
Collateralized mortgage obligations |  |  | — |  |  |  | — |  |  |  | 467,781 |  |  |  | 3,829 |  |  |  | 467,781 |  |  |  | 3,829 |
﻿ |  | $ | 3,027 |  |  | $ | 27 |  |  | $ | 789,533 |  |  | $ | 5,417 |  |  | $ | 792,560 |  |  | $ | 5,444 |

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

The unrealized losses relate primarily to changes in market rates on fixed rate debt securities since the respective purchase dates. In all cases, the indicated impairment on these debt securities would be recovered no later than the security’s maturity date or possibly earlier if the market price for the security increases with a reduction in the yield required by the market. None of the unrealized losses relate to the marketability of the securities or the issuers’ abilities to meet contractual obligations. The Company had adequate liquidity as of June 30, 2019 and December 31, 2018 and did not intend to nor believe that it would be required to sell these securities before recovery of the indicated impairment. Accordingly, the unrealized losses on these securities were determined to be temporary. Should the Company’s intent to sell these securities change, the difference between the amortized cost and the fair value will be recognized into earnings at that time.

There were no sales of securities during the six months ended June 30, 2019 and 2018.

Securities with carrying values totaling $3.5 billion and $3.4 billion at June 30, 2019 and December 31, 2018, respectively, were pledged as collateral, primarily to secure public deposits or securities sold under agreements to repurchase.

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4. Loans and Allowance for Loan Losses

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

|  | June 30, |  |  | December 31, |
(in thousands) |  | 2019 |  |  | 2018 |
Commercial non-real estate |  | $ | 8,559,118 |  |  | $ | 8,620,601 |
Commercial real estate - owner occupied |  |  | 2,519,970 |  |  |  | 2,457,748 |
Total commercial and industrial |  |  | 11,079,088 |  |  |  | 11,078,349 |
Commercial real estate - income producing |  |  | 2,895,468 |  |  |  | 2,341,779 |
Construction and land development |  |  | 1,144,062 |  |  |  | 1,548,335 |
Residential mortgages |  |  | 2,968,271 |  |  |  | 2,910,081 |
Consumer |  |  | 2,088,923 |  |  |  | 2,147,867 |
Total loans |  | $ | 20,175,812 |  |  | $ | 20,026,411 |

The following briefly describes the composition of each loan category.

Commercial and industrial

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

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

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

Commercial real estate – income producing

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

Construction and land development

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

Residential mortgages

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

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Consumer

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

Allowance for Loan Losses

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

|  |  |  |  |  | Commercial |  |  | Total |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  |  | real estate- |  |  | commercial |  |  | real estate- |  |  | Construction |  |  |  |  |  |  |  |  |  |  |  |  |
|  | non-real |  |  | owner |  |  | and |  |  | income |  |  | and land |  |  | Residential |  |  |  |  |  |  |  |  |
(in thousands) |  | estate |  |  | occupied |  |  | industrial |  |  | producing |  |  | development |  |  | mortgages |  |  | Consumer |  |  | Total |
|  | Six Months Ended June 30, 2019 |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 97,752 |  |  | $ | 13,757 |  |  | $ | 111,509 |  |  | $ | 17,638 |  |  | $ | 15,647 |  |  | $ | 23,782 |  |  | $ | 25,938 |  |  | $ | 194,514 |
Charge-offs |  |  | (21,653 | ) |  |  | (71 | ) |  |  | (21,724 | ) |  |  | (10 | ) |  |  | — |  |  |  | (439 | ) |  |  | (8,167 | ) |  |  | (30,340 | )
Recoveries |  |  | 2,730 |  |  |  | 221 |  |  |  | 2,951 |  |  |  | 2 |  |  |  | 97 |  |  |  | 266 |  |  |  | 2,004 |  |  |  | 5,320 |
Net provision for loan losses |  |  | 17,698 |  |  |  | 328 |  |  |  | 18,026 |  |  |  | 7,781 |  |  |  | (4,079 | ) |  |  | (551 | ) |  |  | 4,954 |  |  |  | 26,131 |
Ending balance |  | $ | 96,527 |  |  | $ | 14,235 |  |  | $ | 110,762 |  |  | $ | 25,411 |  |  | $ | 11,665 |  |  | $ | 23,058 |  |  | $ | 24,729 |  |  | $ | 195,625 |
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance: |  |  |
Individually evaluated for impairment |  | $ | 8,486 |  |  | $ | 142 |  |  | $ | 8,628 |  |  | $ | 93 |  |  | $ | 1 |  |  | $ | 146 |  |  | $ | 253 |  |  | $ | 9,121 |
Amounts related to purchased credit impaired loans |  |  | 138 |  |  |  | 172 |  |  |  | 310 |  |  |  | 105 |  |  |  | 151 |  |  |  | 8,695 |  |  |  | 313 |  |  |  | 9,574 |
Collectively evaluated for impairment |  |  | 87,903 |  |  |  | 13,921 |  |  |  | 101,824 |  |  |  | 25,213 |  |  |  | 11,513 |  |  |  | 14,217 |  |  |  | 24,163 |  |  |  | 176,930 |
Total allowance |  | $ | 96,527 |  |  | $ | 14,235 |  |  | $ | 110,762 |  |  | $ | 25,411 |  |  | $ | 11,665 |  |  | $ | 23,058 |  |  | $ | 24,729 |  |  | $ | 195,625 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 224,603 |  |  | $ | 17,769 |  |  | $ | 242,372 |  |  | $ | 1,880 |  |  | $ | 19 |  |  | $ | 4,089 |  |  | $ | 1,521 |  |  | $ | 249,881 |
Purchased credit impaired loans |  |  | 6,313 |  |  |  | 5,581 |  |  |  | 11,894 |  |  |  | 4,702 |  |  |  | 1,482 |  |  |  | 98,472 |  |  |  | 3,444 |  |  |  | 119,994 |
Collectively evaluated for impairment |  |  | 8,328,202 |  |  |  | 2,496,620 |  |  |  | 10,824,822 |  |  |  | 2,888,886 |  |  |  | 1,142,561 |  |  |  | 2,865,710 |  |  |  | 2,083,958 |  |  |  | 19,805,937 |
Total loans |  | $ | 8,559,118 |  |  | $ | 2,519,970 |  |  | $ | 11,079,088 |  |  | $ | 2,895,468 |  |  | $ | 1,144,062 |  |  | $ | 2,968,271 |  |  | $ | 2,088,923 |  |  | $ | 20,175,812 |

|  |  |  |  |  | Commercial |  |  | Total |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  |  | real estate- |  |  | commercial |  |  | real estate- |  |  | Construction |  |  |  |  |  |  |  |  |  |  |  |  |
|  | non-real |  |  | owner |  |  | and |  |  | income |  |  | and land |  |  | Residential |  |  |  |  |  |  |  |  |
(in thousands) |  | estate |  |  | occupied |  |  | industrial |  |  | producing |  |  | development |  |  | mortgages |  |  | Consumer |  |  | Total |
|  | Six Months Ended June 30, 2018 |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 127,918 |  |  | $ | 12,962 |  |  | $ | 140,880 |  |  | $ | 13,709 |  |  | $ | 7,372 |  |  | $ | 24,844 |  |  | $ | 30,503 |  |  | $ | 217,308 |
Charge-offs |  |  | (11,845 | ) |  |  | (6,804 | ) |  |  | (18,649 | ) |  |  | (1,604 | ) |  |  | (220 | ) |  |  | (498 | ) |  |  | (12,964 | ) |  |  | (33,935 | )
Recoveries |  |  | 12,476 |  |  |  | 275 |  |  |  | 12,751 |  |  |  | 65 |  |  |  | 38 |  |  |  | 712 |  |  |  | 3,095 |  |  |  | 16,661 |
Net provision for loan losses |  |  | (1,981 | ) |  |  | 7,727 |  |  |  | 5,746 |  |  |  | 1,975 |  |  |  | 3,121 |  |  |  | (862 | ) |  |  | 11,164 |  |  |  | 21,144 |
Reduction as a result of sale of subsidiary |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6,648 | ) |  |  | (6,648 | )
Ending balance |  | $ | 126,568 |  |  | $ | 14,160 |  |  | $ | 140,728 |  |  | $ | 14,145 |  |  | $ | 10,311 |  |  | $ | 24,196 |  |  | $ | 25,150 |  |  | $ | 214,530 |
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 19,369 |  |  | $ | 824 |  |  | $ | 20,193 |  |  | $ | 407 |  |  | $ | 1 |  |  | $ | 99 |  |  | $ | 130 |  |  | $ | 20,830 |
Amounts related to purchased credit impaired loans |  |  | 427 |  |  |  | 420 |  |  |  | 847 |  |  |  | 46 |  |  |  | 115 |  |  |  | 10,873 |  |  |  | 497 |  |  |  | 12,378 |
Collectively evaluated for impairment |  |  | 106,772 |  |  |  | 12,916 |  |  |  | 119,688 |  |  |  | 13,692 |  |  |  | 10,195 |  |  |  | 13,224 |  |  |  | 24,523 |  |  |  | 181,322 |
Total allowance |  | $ | 126,568 |  |  | $ | 14,160 |  |  | $ | 140,728 |  |  | $ | 14,145 |  |  | $ | 10,311 |  |  | $ | 24,196 |  |  | $ | 25,150 |  |  | $ | 214,530 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 291,071 |  |  | $ | 26,967 |  |  | $ | 318,038 |  |  | $ | 8,820 |  |  | $ | 113 |  |  | $ | 3,733 |  |  | $ | 599 |  |  | $ | 331,303 |
Purchased credit impaired loans |  |  | 8,221 |  |  |  | 6,630 |  |  |  | 14,851 |  |  |  | 3,800 |  |  |  | 4,769 |  |  |  | 111,805 |  |  |  | 5,381 |  |  |  | 140,606 |
Collectively evaluated for impairment |  |  | 8,111,669 |  |  |  | 2,200,197 |  |  |  | 10,311,866 |  |  |  | 2,329,572 |  |  |  | 1,510,351 |  |  |  | 2,664,821 |  |  |  | 2,082,398 |  |  |  | 18,899,008 |
Total loans |  | $ | 8,410,961 |  |  | $ | 2,233,794 |  |  | $ | 10,644,755 |  |  | $ | 2,342,192 |  |  | $ | 1,515,233 |  |  | $ | 2,780,359 |  |  | $ | 2,088,378 |  |  | $ | 19,370,917 |

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Impaired Loans

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

|  | June 30, |  |  | December 31, |
(in thousands) |  | 2019 |  |  | 2018 |
Commercial non-real estate |  | $ | 137,126 |  |  | $ | 110,653 |
Commercial real estate - owner occupied |  |  | 13,220 |  |  |  | 16,895 |
Total commercial and industrial |  |  | 150,346 |  |  |  | 127,548 |
Commercial real estate - income producing |  |  | 3,544 |  |  |  | 4,991 |
Construction and land development |  |  | 1,608 |  |  |  | 2,146 |
Residential mortgages |  |  | 37,300 |  |  |  | 35,866 |
Consumer |  |  | 17,033 |  |  |  | 16,744 |
Total loans |  | $ | 209,831 |  |  | $ | 187,295 |

Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $99.1 million and $85.5 million at June 30, 2019 and December 31, 2018, respectively. Total TDRs, both accruing and nonaccruing, were $200.3 million at June 30, 2019 and $224.6 million at December 31, 2018. All TDRs are individually evaluated for impairment. At June 30, 2019 and December 31, 2018, the Company had unfunded commitments of $3.6 million and $2.1 million, respectively, to borrowers whose loan terms have been modified in a TDR.

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

|  | Three Months Ended |
($ in thousands) |  | June 30, 2019 |  |  | June 30, 2018 |
|  |  |  |  |  | Pre- Modification |  |  | Post- Modification |  |  |  |  |  |  | Pre- Modification |  |  | Post- Modification |
|  | Number |  |  | Outstanding |  |  | Outstanding |  |  | Number |  |  | Outstanding |  |  | Outstanding |
|  | of |  |  | Recorded |  |  | Recorded |  |  | of |  |  | Recorded |  |  | Recorded |
Troubled Debt Restructurings: |  | Contracts |  |  | Investment |  |  | Investment |  |  | Contracts |  |  | Investment |  |  | Investment |
Commercial non-real estate |  |  | 1 |  |  | $ | 334 |  |  | $ | 334 |  |  |  | 5 |  |  | $ | 6,477 |  |  | $ | 6,477 |
Commercial real estate - owner occupied |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total commercial and industrial |  |  | 1 |  |  |  | 334 |  |  |  | 334 |  |  |  | 5 |  |  |  | 6,477 |  |  |  | 6,477 |
Commercial real estate - income producing |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Construction and land development |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgages |  |  | 2 |  |  |  | 638 |  |  |  | 638 |  |  |  | 2 |  |  |  | 75 |  |  |  | 75 |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total loans |  |  | 3 |  |  | $ | 972 |  |  | $ | 972 |  |  |  | 7 |  |  | $ | 6,552 |  |  | $ | 6,552 |

|  | Six Months Ended |
($ in thousands) |  | June 30, 2019 |  |  | June 30, 2018 |
Troubled Debt Restructurings: |  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |  |  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |
Commercial non-real estate |  |  | 8 |  |  | $ | 14,137 |  |  | $ | 14,137 |  |  |  | 18 |  |  | $ | 61,959 |  |  | $ | 61,959 |
Commercial real estate - owner occupied |  |  | 1 |  |  |  | 167 |  |  |  | 167 |  |  |  | 1 |  |  |  | 5,909 |  |  |  | 5,909 |
Total commercial and industrial |  |  | 9 |  |  |  | 14,304 |  |  |  | 14,304 |  |  |  | 19 |  |  |  | 67,868 |  |  |  | 67,868 |
Commercial real estate - income producing |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | 1,564 |  |  |  | 1,564 |
Construction and land development |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgages |  |  | 7 |  |  |  | 1,902 |  |  |  | 1,902 |  |  |  | 3 |  |  |  | 118 |  |  |  | 118 |
Consumer |  |  | 2 |  |  |  | 46 |  |  |  | 46 |  |  |  | 1 |  |  |  | 222 |  |  |  | 222 |
Total loans |  |  | 18 |  |  | $ | 16,252 |  |  | $ | 16,252 |  |  |  | 24 |  |  | $ | 69,772 |  |  | $ | 69,772 |

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The TDRs modified during the six months ended June 30, 2019 reflected in the table above include $0.1 million of loans with extended amortization terms or other payment concessions, $9.1 million with significant covenant waivers and $7.0 million with other modifications. The TDRs modified during the six months ended June 30, 2018 include $49.6 million of loans with extended amortization terms or other payment concessions, $14.6 million with significant covenant waivers and $5.6 million with other modifications.

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

The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at June 30, 2019 and December 31, 2018. Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate relationship balances of $1 million or more.

|  | June 30, 2019 |
(in thousands) |  | Recorded investment without an allowance |  |  | Recorded investment with an allowance |  |  | Unpaid principal balance |  |  | Related allowance |
Commercial non-real estate |  | $ | 149,605 |  |  | $ | 74,998 |  |  | $ | 260,833 |  |  | $ | 8,486 |
Commercial real estate - owner occupied |  |  | 10,971 |  |  |  | 6,798 |  |  |  | 22,352 |  |  |  | 142 |
Total commercial and industrial |  |  | 160,576 |  |  |  | 81,796 |  |  |  | 283,185 |  |  |  | 8,628 |
Commercial real estate - income producing |  |  | 385 |  |  |  | 1,495 |  |  |  | 1,932 |  |  |  | 93 |
Construction and land development |  |  | — |  |  |  | 19 |  |  |  | 19 |  |  |  | 1 |
Residential mortgages |  |  | 2,669 |  |  |  | 1,420 |  |  |  | 4,619 |  |  |  | 146 |
Consumer |  |  | 494 |  |  |  | 1,027 |  |  |  | 1,802 |  |  |  | 253 |
Total loans |  | $ | 164,124 |  |  | $ | 85,757 |  |  | $ | 291,557 |  |  | $ | 9,121 |

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

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

|  | Three Months Ended |
|  | June 30, 2019 |  |  | June 30, 2018 |
(in thousands) |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
Commercial non-real estate |  | $ | 228,055 |  |  | $ | 1,444 |  |  | $ | 307,492 |  |  | $ | 2,002 |
Commercial real estate - owner occupied |  |  | 17,371 |  |  |  | 71 |  |  |  | 28,643 |  |  |  | 102 |
Total commercial and industrial |  |  | 245,426 |  |  |  | 1,515 |  |  |  | 336,135 |  |  |  | 2,104 |
Commercial real estate - income producing |  |  | 2,274 |  |  |  | 7 |  |  |  | 11,446 |  |  |  | 24 |
Construction and land development |  |  | 19 |  |  |  | — |  |  |  | 113 |  |  |  | — |
Residential mortgages |  |  | 4,743 |  |  |  | 2 |  |  |  | 6,036 |  |  |  | 5 |
Consumer |  |  | 1,515 |  |  |  | 18 |  |  |  | 608 |  |  |  | 9 |
Total loans |  | $ | 253,977 |  |  | $ | 1,542 |  |  | $ | 354,338 |  |  | $ | 2,142 |

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|  | Six Months Ended |
|  | June 30, 2019 |  |  | June 30, 2018 |
(in thousands) |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
Commercial non-real estate |  | $ | 231,750 |  |  | $ | 3,140 |  |  | $ | 301,695 |  |  | $ | 3,588 |
Commercial real estate - owner occupied |  |  | 18,346 |  |  |  | 151 |  |  |  | 27,274 |  |  |  | 168 |
Total commercial and industrial |  |  | 250,096 |  |  |  | 3,291 |  |  |  | 328,969 |  |  |  | 3,756 |
Commercial real estate - income producing |  |  | 2,480 |  |  |  | 14 |  |  |  | 13,123 |  |  |  | 49 |
Construction and land development |  |  | 45 |  |  |  | — |  |  |  | 176 |  |  |  | — |
Residential mortgages |  |  | 4,690 |  |  |  | 7 |  |  |  | 7,762 |  |  |  | 10 |
Consumer |  |  | 1,386 |  |  |  | 34 |  |  |  | 781 |  |  |  | 18 |
Total loans |  | $ | 258,697 |  |  | $ | 3,346 |  |  | $ | 350,811 |  |  | $ | 3,833 |

Aging Analysis

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

June 30, 2019 |  | 30-59 days past due |  |  | 60-89 days past due |  |  | Greater than 90 days past due |  |  | Total past due |  |  | Current |  |  | Total Loans |  |  | Recorded investment > 90 days and still accruing |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 4,289 |  |  | $ | 9,159 |  |  | $ | 57,760 |  |  | $ | 71,208 |  |  | $ | 8,487,910 |  |  | $ | 8,559,118 |  |  | $ | 613 |
Commercial real estate - owner occupied |  |  | 2,858 |  |  |  | 1,732 |  |  |  | 16,047 |  |  | $ | 20,637 |  |  |  | 2,499,333 |  |  |  | 2,519,970 |  |  |  | 4,031 |
Total commercial and industrial |  |  | 7,147 |  |  |  | 10,891 |  |  |  | 73,807 |  |  |  | 91,845 |  |  |  | 10,987,243 |  |  |  | 11,079,088 |  |  |  | 4,644 |
Commercial real estate - income producing |  |  | 762 |  |  |  | — |  |  |  | 2,798 |  |  |  | 3,560 |  |  |  | 2,891,908 |  |  |  | 2,895,468 |  |  |  | — |
Construction and land development |  |  | 779 |  |  |  | 2,199 |  |  |  | 1,322 |  |  |  | 4,300 |  |  |  | 1,139,761 |  |  |  | 1,144,062 |  |  |  | 612 |
Residential mortgages |  |  | 2,865 |  |  |  | 8,748 |  |  |  | 20,690 |  |  |  | 32,303 |  |  |  | 2,935,968 |  |  |  | 2,968,271 |  |  |  | 47 |
Consumer |  |  | 15,989 |  |  |  | 3,960 |  |  |  | 9,498 |  |  |  | 29,447 |  |  |  | 2,059,476 |  |  |  | 2,088,923 |  |  |  | 1,190 |
Total |  | $ | 27,542 |  |  | $ | 25,798 |  |  | $ | 108,115 |  |  | $ | 161,455 |  |  | $ | 20,014,356 |  |  | $ | 20,175,812 |  |  | $ | 6,493 |

December 31, 2018 |  | 30-59 days past due |  |  | 60-89 days past due |  |  | Greater than 90 days past due |  |  | Total past due |  |  | Current |  |  | Total Loans |  |  | Recorded investment > 90 days and still accruing |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 12,257 |  |  | $ | 3,895 |  |  | $ | 77,551 |  |  | $ | 93,703 |  |  | $ | 8,526,898 |  |  |  | 8,620,601 |  |  | $ | 10,823 |
Commercial real estate - owner occupied |  |  | 2,394 |  |  |  | 1,570 |  |  |  | 14,542 |  |  |  | 18,506 |  |  |  | 2,439,242 |  |  |  | 2,457,748 |  |  |  | 380 |
Total commercial and industrial |  |  | 14,651 |  |  |  | 5,465 |  |  |  | 92,093 |  |  |  | 112,209 |  |  |  | 10,966,140 |  |  |  | 11,078,349 |  |  |  | 11,203 |
Commercial real estate - income producing |  |  | 2,371 |  |  |  | 772 |  |  |  | 5,495 |  |  |  | 8,638 |  |  |  | 2,333,141 |  |  |  | 2,341,779 |  |  |  | 1,844 |
Construction and land development |  |  | 7,397 |  |  |  | 1,129 |  |  |  | 2,165 |  |  |  | 10,691 |  |  |  | 1,537,644 |  |  |  | 1,548,335 |  |  |  | 644 |
Residential mortgages |  |  | 32,869 |  |  |  | 14,706 |  |  |  | 23,175 |  |  |  | 70,750 |  |  |  | 2,839,331 |  |  |  | 2,910,081 |  |  |  | — |
Consumer |  |  | 20,402 |  |  |  | 4,695 |  |  |  | 9,665 |  |  |  | 34,762 |  |  |  | 2,113,105 |  |  |  | 2,147,867 |  |  |  | 618 |
Total |  | $ | 77,690 |  |  | $ | 26,767 |  |  | $ | 132,593 |  |  | $ | 237,050 |  |  | $ | 19,789,361 |  |  | $ | 20,026,411 |  |  | $ | 14,309 |

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Credit Quality Indicators

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

|  | June 30, 2019 |
(in thousands) |  | Commercial non-real estate |  |  | Commercial real estate - owner- occupied |  |  | Total commercial and industrial |  |  | Commercial real estate - income producing |  |  | Construction and land development |  |  | Total commercial |
Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 7,940,853 |  |  | $ | 2,320,832 |  |  | $ | 10,261,685 |  |  | $ | 2,755,518 |  |  | $ | 1,122,619 |  |  | $ | 14,139,822 |
Pass-Watch |  |  | 169,005 |  |  |  | 122,050 |  |  |  | 291,055 |  |  |  | 98,767 |  |  |  | 16,121 |  |  | $ | 405,943 |
Special Mention |  |  | 62,545 |  |  |  | 11,981 |  |  |  | 74,526 |  |  |  | 20,927 |  |  |  | 253 |  |  | $ | 95,706 |
Substandard |  |  | 386,715 |  |  |  | 65,107 |  |  |  | 451,822 |  |  |  | 20,256 |  |  |  | 5,069 |  |  | $ | 477,147 |
Doubtful |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 8,559,118 |  |  | $ | 2,519,970 |  |  | $ | 11,079,088 |  |  | $ | 2,895,468 |  |  | $ | 1,144,062 |  |  | $ | 15,118,618 |

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

|  | June 30, 2019 |  |  | December 31, 2018 |
(in thousands) |  | Residential mortgage |  |  | Consumer |  |  | Total |  |  | Residential mortgage |  |  | Consumer |  |  | Total |
Performing |  | $ | 2,930,531 |  |  | $ | 2,070,863 |  |  | $ | 5,001,394 |  |  | $ | 2,873,669 |  |  | $ | 2,130,395 |  |  | $ | 5,004,064 |
Nonperforming |  |  | 37,740 |  |  |  | 18,060 |  |  | $ | 55,800 |  |  |  | 36,412 |  |  |  | 17,472 |  |  |  | 53,884 |
Total |  | $ | 2,968,271 |  |  | $ | 2,088,923 |  |  | $ | 5,057,194 |  |  | $ | 2,910,081 |  |  | $ | 2,147,867 |  |  | $ | 5,057,948 |

Below are the definitions of the Company’s internally assigned grades:

Commercial:

| • | Pass – loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk.

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

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

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

| • | Doubtful – an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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

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Residential and Consumer:

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

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

Purchased Credit Impaired Loans

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

|  | June 30, 2019 |  |  | December 31, 2018 |
(in thousands) |  | Carrying Amount of Loans |  |  | Accretable Yield |  |  | Carrying Amount of Loans |  |  | Accretable Yield |
Balance at beginning of period |  | $ | 129,596 |  |  | $ | 37,294 |  |  | $ | 153,403 |  |  | $ | 62,517 |
Payments received, net |  |  | (16,254 | ) |  |  | (2,328 | ) |  |  | (39,556 | ) |  |  | (5,779 | )
Accretion |  |  | 6,652 |  |  |  | (6,652 | ) |  |  | 15,749 |  |  |  | (15,749 | )
Decrease in expected cash flows based on actual cash flows and changes in cash flow assumptions |  |  | — |  |  |  | 3,926 |  |  |  | — |  |  |  | (3,695 | )
Balance at end of period |  | $ | 119,994 |  |  | $ | 32,240 |  |  | $ | 129,596 |  |  | $ | 37,294 |

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $8.7 million and $7.1 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of June 30, 2019 and December 31, 2018, respectively. Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. In addition to the single family residential real estate loans in process of foreclosure, the Company also held $2.6 million and $1.8 million of foreclosed single family residential properties in other real estate owned at June 30, 2019 and December 31, 2018, respectively.

5. Operating Leases

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

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

Some of the Company’s leases contain variable components, such as annual changes to rent based on the consumer price index. Operating lease liabilities are not re-measured as a result of changes to variable components unless the lease must be re-measured for

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some other reason such as a renewal that was not reasonably certain of being exercised. Changes to the variable components are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

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

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

Supplemental balance sheet information pertaining to operating leases:

(dollars in thousands) | Three Months Ended June 30, 2019 |  |  | Six Months Ended June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities for operating leases | $ | 3,870 |  |  | $ | 7,880 |
Right of use assets obtained in exchange for lease liabilities | $ | 1,105 |  |  | $ | 117,723 |
|  |  |  |  |  | June 30, 2019 |
Weighted average remaining lease term (in years) |  |  |  |  |  | 12.93 |
Weighted average discount rate |  |  |  |  |  | 3.55 | %

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

(dollars in thousands) |  |  |  |  |
2019 |  |  | $ | 8,393 |
2020 |  |  |  | 15,779 |
2021 |  |  |  | 15,085 |
2022 |  |  |  | 14,889 |
2023 |  |  |  | 13,525 |
Thereafter |  |  |  | 96,994 |
Total |  |  |  | 164,665 |
Present value discount |  |  |  | (35,947 | )
Lease liability |  |  | $ | 128,718 |

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

(in thousands) |  | Three Months Ended June 30, 2019 |  |  | Six Months Ended June 30, 2019 |
Operating lease expense |  | $ | 4,244 |  |  | $ | 8,497 |
Short-term lease expense |  |  | 20 |  |  |  | 39 |
Variable lease expense |  |  | 12 |  |  |  | 24 |
Sublease income |  |  | (60 | ) |  |  | (176 | )
Total |  | $ | 4,216 |  |  | $ | 8,384 |

6. Securities Sold under Agreements to Repurchase

Included in short-term borrowings are customer securities sold under agreements to repurchase (“repurchase agreements”) that mature daily and are secured by U.S. agency securities totaling $631.0 million and $428.6 million at June 30, 2019 and December 31, 2018, respectively. The Company borrows funds on a secured basis by selling securities under agreements to repurchase, mainly in connection with treasury management services offered to its deposit customers. As the Company maintains effective control over assets sold under agreements to repurchase, the securities continue to be carried on the consolidated statements of financial condition. Because the Company acts as borrower transferring assets to the counterparty, and the agreements mature daily, the Company’s risk is limited.

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7. Derivatives

Risk Management Objective of Using Derivatives

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

Fair Values of Derivative Instruments on the Balance Sheet

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

|  |  |  | June 30, 2019 |  |  | December 31, 2018 |
|  |  |  |  |  |  |  | Derivative (1) |  |  |  |  |  |  | Derivative (1) |
(in thousands) |  | Type of Hedge |  | Notional or Contractual Amount |  |  | Assets |  |  | Liabilities |  |  | Notional or Contractual Amount |  |  | Assets |  |  | Liabilities |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Cash Flow |  | $ | 1,075,000 |  |  | $ | 25,328 |  |  | $ | — |  |  | $ | 875,000 |  |  | $ | 3,954 |  |  | $ | 9,173 |
Interest rate swaps |  | Fair Value |  |  | 163,110 |  |  |  | — |  |  |  | 290 |  |  |  | 483,110 |  |  |  | — |  |  |  | 2,089 |
|  |  |  |  | 1,238,110 |  |  |  | 25,328 |  |  |  | 290 |  |  |  | 1,358,110 |  |  |  | 3,954 |  |  |  | 11,262 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps (2) |  | N/A |  |  | 1,495,638 |  |  |  | 51,255 |  |  |  | 52,573 |  |  |  | 1,277,404 |  |  |  | 23,670 |  |  |  | 24,669 |
Risk participation agreements |  | N/A |  |  | 181,100 |  |  |  | 11 |  |  |  | 70 |  |  |  | 171,222 |  |  |  | 10 |  |  |  | 131 |
Forward commitments to sell residential mortgage loans |  | N/A |  |  | 124,987 |  |  |  | 48 |  |  |  | 742 |  |  |  | 77,208 |  |  |  | 110 |  |  |  | 664 |
Interest rate-lock commitments on residential mortgage loans |  | N/A |  |  | 91,325 |  |  |  | 576 |  |  |  | 42 |  |  |  | 59,119 |  |  |  | 464 |  |  |  | 67 |
Foreign exchange forward contracts |  | N/A |  |  | 40,230 |  |  |  | 466 |  |  |  | 434 |  |  |  | 37,749 |  |  |  | 751 |  |  |  | 718 |
Visa Class B derivative contract |  | N/A |  |  | 43,753 |  |  |  | — |  |  |  | 6,602 |  |  |  | 43,753 |  |  |  | — |  |  |  | 7,304 |
|  |  |  |  | 1,977,033 |  |  |  | 52,356 |  |  |  | 60,463 |  |  |  | 1,666,455 |  |  |  | 25,005 |  |  |  | 33,553 |
Total derivatives |  |  |  | $ | 3,215,143 |  |  | $ | 77,684 |  |  | $ | 60,753 |  |  | $ | 3,024,565 |  |  | $ | 28,959 |  |  | $ | 44,815 |
Less: netting adjustment (3) |  |  |  |  |  |  |  |  | (26,075 | ) |  |  | (41,505 | ) |  |  |  |  |  |  | (11,979 | ) |  |  | (22,588 | )
Total derivative assets/liabilities |  |  |  |  |  |  |  | $ | 51,609 |  |  | $ | 19,248 |  |  |  |  |  |  | $ | 16,980 |  |  | $ | 22,227 |

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

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

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

Cash Flow Hedges of Interest Rate Risk

The Company is party to various interest rate swap agreements designated and qualifying as cash flow hedges of the Company’s forecasted variable cash flows for pools of variable rate loans. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate. During the six months ended June 30, 2018, the Company terminated five of its shorter-term swap agreements with notional amounts totaling $450 million and entered into five longer-term agreements with notional amounts totaling $450 million. The Company paid termination fees of approximately $10.6 million to settle the interest rate swap liabilities, and the resulting accumulated other comprehensive loss is being amortized over the remaining maturities of the designated instruments. Amortization of other comprehensive loss on terminated cash flow hedges totaled $2.5 million for each of the six months ended June 30, 2019 and 2018. The notional amounts of the swap agreements in place at June 30, 2019 expire as follows: $50 million in 2021; $475 million in 2022; $450 million in 2023; and $100 million in 2024.

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Fair Value Hedges of Interest Rate Risk

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

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions. Because the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Risk participation agreements

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

Mortgage banking derivatives

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

Customer foreign exchange forward contract derivatives

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

Visa Class B derivative contract

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

The contract includes a contingent accelerated termination clause based on the credit ratings of the Company. At June 30, 2019 and December 31, 2018 the fair value of the liability associated with this contract was $6.6 million and $7.3 million, respectively. Refer to Note 15 – Fair Value of Financial Instruments for discussion of the valuation inputs for this derivative liability.

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Effect of Derivative Instruments on the Statement of Income

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

|  |  |  | Three Months Ended |  |  | Six Months |
|  |  |  | June 30, |  |  | June 30, |
Derivative Instruments: |  | Location of Gain (Loss) Recognized in the Statement of Income: |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Interest rate swaps - cash flow hedges |  | Interest income |  | $ | (1,660 | ) |  | $ | (946 | ) |  | $ | (3,676 | ) |  | $ | (1,565 | )
Interest rate swaps - fair value hedges |  | Interest expense |  | $ | (461 | ) |  |  | (519 | ) |  |  | (1,449 | ) |  |  | (646 | )
All other instruments |  | Other noninterest income |  | $ | 3,600 |  |  |  | 1,588 |  |  |  | 4,409 |  |  |  | 3,111 |
Total |  |  |  | $ | 1,479 |  |  | $ | 123 |  |  | $ | (716 | ) |  | $ | 900 |

Credit Risk-Related Contingent Features

Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as a downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. At June 30, 2019, the Company was not in violation of any such provisions.

Offsetting Assets and Liabilities

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

(in thousands) |  |  |  |  |  | Gross Amounts |  |  | Net Amounts |  |  | Gross Amounts Not Offset in the Statement of Income |
Description |  | Gross Amounts Recognized |  |  | Offset in the Statement of Income |  |  | Presented in the Statement of Income |  |  | Financial Instruments |  |  | Cash Collateral |  |  | Net Amount |
As of June 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets |  | $ | 26,558 |  |  | $ | (26,405 | ) |  | $ | 153 |  |  | $ | 153 |  |  | $ | — |  |  | $ | — |
Derivative Liabilities |  | $ | 51,833 |  |  | $ | (41,325 | ) |  | $ | 10,508 |  |  | $ | 153 |  |  | $ | 15,304 |  |  | $ | (4,949 | )

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

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

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8. Stockholders’ Equity

Common Shares Outstanding

Common shares outstanding excludes treasury shares totaling 0.8 million at June 30, 2019 and 0.9 million at December 31, 2018, with a first-in-first-out cost basis of $14.2 million and $18.5 million at June 30, 2019 and December 31, 2018, respectively. Shares outstanding also excludes unvested restricted share awards totaling 1.3 million at June 30, 2019 and December 31, 2018.

Stock Buyback Program

On May 24, 2018, the Company’s board of directors approved a stock buyback program that authorized the repurchase of up to 5%, or approximately 4.3 million shares, of its outstanding common stock. The approved program allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company in one or more transactions, from time to time until December 31, 2019. The Company is not obligated to purchase any shares under this program, and the board of directors may terminate or amend the program at any time prior to the expiration date. As of June 30, 2019, 200,000 shares of the Company’s common stock had been purchased at an average price of $41.30 per share under this program.

Accumulated Other Comprehensive Loss

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

﻿ |  | Available for Sale Securities |  |  | HTM Securities Transferred from AFS |  |  | Employee Benefit Plans |  |  | Cash Flow Hedges |  |  | Equity Method Investment |  |  | Total |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, December 31, 2017 |  | $ | (29,512 | ) |  | $ | (14,585 | ) |  | $ | (79,078 | ) |  | $ | (11,227 | ) |  | $ | — |  |  | $ | (134,402 | )
Other comprehensive income/loss before income taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in unrealized loss |  |  | (71,759 | ) |  |  | — |  |  |  | — |  |  |  | (13,894 | ) |  |  | — |  |  |  | (85,653 | )
Reclassification of net loss realized and included in earnings |  |  | — |  |  |  | — |  |  |  | 2,448 |  |  |  | 1,565 |  |  |  | — |  |  |  | 4,013 |
Other Valuation adjustments for employee benefit plan |  |  | — |  |  |  | — |  |  |  | (9,039 | ) |  |  | — |  |  |  | — |  |  |  | (9,039 | )
Amortization of unrealized net loss on securities transferred to HTM |  |  | — |  |  |  | 1,680 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,680 |
Income tax expense (benefit) |  |  | (16,284 | ) |  |  | 380 |  |  |  | (1,494 | ) |  |  | (2,794 | ) |  |  | — |  |  |  | (20,192 | )
Balance, June 30, 2018 |  | $ | (84,987 | ) |  | $ | (13,285 | ) |  | $ | (84,175 | ) |  | $ | (20,762 | ) |  | $ | — |  |  | $ | (203,209 | )
Balance, December 31, 2018 |  | $ | (50,125 | ) |  | $ | (12,044 | ) |  | $ | (110,247 | ) |  | $ | (8,293 | ) |  | $ | — |  |  | $ | (180,709 | )
Other comprehensive income (loss) before income taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in unrealized gain or loss |  |  | 96,514 |  |  |  | — |  |  |  | — |  |  |  | 29,343 |  |  |  | 611 |  |  |  | 126,468 |
Reclassification of net loss realized and included in earnings |  |  | — |  |  |  | — |  |  |  | 4,527 |  |  |  | 3,676 |  |  |  | — |  |  |  | 8,203 |
Amortization of unrealized net loss on securities transferred to HTM |  |  | — |  |  |  | 1,481 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,481 |
Income tax expense |  |  | 21,822 |  |  |  | 335 |  |  |  | 1,023 |  |  |  | 7,466 |  |  |  | — |  |  |  | 30,646 |
Balance, June 30, 2019 |  | $ | 24,567 |  |  | $ | (10,898 | ) |  | $ | (106,743 | ) |  | $ | 17,260 |  |  | $ | 611 |  |  | $ | (75,203 | )

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Accumulated Other Comprehensive Income or Loss (“AOCI”) is reported as a comp onent of stockholders’ equity. AOCI can include, among other items, unrealized holding gains and losses on securities available for sale (“AFS”), including the Company’s share of unrealized gains and losses reported by a partnership accounted for under the equity method, gains and losses associated with pension or other post-retirement benefits that are not recognized immediately as a component of net periodic benefit cost, and gains and losses on derivative instruments that are designat ed as, and qualify as, cash flo w hedges. Net unrealized gains and losses on AFS securities reclassified as securities held to maturity (“HTM”) also continue to be reported as a component of AOCI and will be amortized over the estimated remaining life of the securities as an adj ustment to interest income. Subject to certain thresholds, unrealized losses on employee benefit plans will be reclassified into income as pension and post-retirement costs are recognized over the remaining service period of plan participants. Accumulated gains or losses on the cash flow hedge of the variable rate loans described in Note 7 will be reclassified into inco me over the life of the hedge. Accumulated other comprehensive loss resulting from the terminated interest rate swaps will be amortized over the remaining maturities of the designated instruments. Gains and losses within AOCI are net of deferred income taxes, where applicable.

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

﻿ |  | Six Months |  |  |
Amount reclassified from AOCI (a) |  | June 30, |  |  | Affected line item on
(in thousands) |  | 2019 |  |  | 2018 |  |  | the statement of income
Amortization of unrealized net loss on securities transferred to HTM |  | $ | (1,481 | ) |  | $ | (1,680 | ) |  | Interest income
Tax effect |  |  | 335 |  |  |  | 380 |  |  | Income taxes
Net of tax |  |  | (1,146 | ) |  |  | (1,300 | ) |  | Net income
Amortization of defined benefit pension and post-retirement items |  |  | (4,527 | ) |  |  | (2,448 | ) |  | Other noninterest expense (b)
Tax effect |  |  | 1,023 |  |  |  | 555 |  |  | Income taxes
Net of tax |  |  | (3,504 | ) |  |  | (1,893 | ) |  | Net income
Reclassification of unrealized gain (loss) on cash flow hedges |  |  | (1,204 | ) |  |  | 979 |  |  | Interest income
Tax effect |  |  | 272 |  |  |  | (222 | ) |  | Income taxes
Net of tax |  |  | (932 | ) |  |  | 757 |  |  | Net income
Amortization of loss on terminated cash flow hedges |  |  | (2,472 | ) |  |  | (2,544 | ) |  | Interest income
Tax effect |  |  | 559 |  |  |  | 577 |  |  | Income taxes
Net of tax |  |  | (1,913 | ) |  |  | (1,967 | ) |  | Net income
Total reclassifications, net of tax |  | $ | (7,495 | ) |  | $ | (4,403 | ) |  | Net income

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

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

9. Other Noninterest Income

Components of other noninterest income are as follows:

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Income from bank-owned life insurance |  | $ | 4,083 |  |  | $ | 3,113 |  |  | $ | 7,348 |  |  | $ | 6,183 |
Credit related fees |  |  | 2,937 |  |  |  | 2,416 |  |  |  | 5,532 |  |  |  | 5,138 |
Income from derivatives |  |  | 3,600 |  |  |  | 1,588 |  |  |  | 4,409 |  |  |  | 3,111 |
Gain (loss) on sales of assets |  |  | 34 |  |  |  | 41 |  |  |  | 431 |  |  |  | (1,166 | )
Other miscellaneous |  |  | 4,326 |  |  |  | 3,347 |  |  |  | 6,728 |  |  |  | 6,724 |
Total other noninterest income |  | $ | 14,980 |  |  | $ | 10,505 |  |  | $ | 24,448 |  |  | $ | 19,990 |

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10. Other Noninterest Expense

Components of other noninterest expense are as follows:

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Advertising |  | $ | 3,253 |  |  | $ | 3,517 |  |  | $ | 6,333 |  |  | $ | 6,043 |
Corporate value and franchise taxes |  |  | 4,215 |  |  |  | 3,577 |  |  |  | 8,257 |  |  |  | 7,017 |
Printing and supplies |  |  | 1,092 |  |  |  | 1,688 |  |  |  | 2,261 |  |  |  | 2,974 |
Telecommunications and postage |  |  | 3,363 |  |  |  | 3,615 |  |  |  | 6,829 |  |  |  | 7,465 |
Travel expense |  |  | 1,344 |  |  |  | 1,441 |  |  |  | 2,442 |  |  |  | 2,507 |
Entertainment and contributions |  |  | 2,742 |  |  |  | 3,193 |  |  |  | 5,450 |  |  |  | 5,711 |
Tax credit investment amortization |  |  | 1,234 |  |  |  | 875 |  |  |  | 2,372 |  |  |  | 1,749 |
Other retirement expense |  |  | (4,152 | ) |  |  | (4,458 | ) |  |  | (8,257 | ) |  |  | (8,921 | )
Loss on restructuring of bank-owned life insurance contracts |  |  | — |  |  |  | 3,240 |  |  |  | — |  |  |  | 3,240 |
Other miscellaneous |  |  | 6,588 |  |  |  | 8,830 |  |  |  | 12,279 |  |  |  | 14,514 |
Total other noninterest expense |  | $ | 19,679 |  |  | $ | 25,518 |  |  | $ | 37,966 |  |  | $ | 42,299 |

11. Earnings Per Common Share

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

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | June 30, |
(in thousands, except per share data) |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Numerator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income to common shareholders |  | $ | 88,277 |  |  | $ | 71,177 |  |  | $ | 167,441 |  |  | $ | 143,652 |
Net income allocated to participating securities - basic and diluted |  |  | 1,502 |  |  |  | 1,328 |  |  |  | 2,839 |  |  |  | 2,694 |
Net income allocated to common shareholders - basic and diluted |  | $ | 86,775 |  |  | $ | 69,849 |  |  | $ | 164,602 |  |  | $ | 140,958 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average common shares - basic |  |  | 85,728 |  |  |  | 85,305 |  |  | $ | 85,708 |  |  | $ | 85,273 |
Dilutive potential common shares |  |  | 107 |  |  |  | 178 |  |  |  | 102 |  |  |  | 178 |
Weighted-average common shares - diluted |  |  | 85,835 |  |  |  | 85,483 |  |  | $ | 85,810 |  |  | $ | 85,451 |
Earnings per common share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 1.01 |  |  | $ | 0.82 |  |  | $ | 1.92 |  |  | $ | 1.65 |
Diluted |  | $ | 1.01 |  |  | $ | 0.82 |  |  | $ | 1.92 |  |  | $ | 1.65 |

Potential common shares consist of stock options, nonvested performance-based awards, and nonvested restricted share awards deferred under the Company’s nonqualified deferred compensation plan. These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be antidilutive, i.e., increase earnings per share or reduce a loss per share. Weighted average antidilutive potential common shares totaled 14,150 and 14,183 for the three and six months ended June 30, 2019, respectively. There were 1,816 and 913 antidilutive potential common shares excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2018, respectively.

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12. Retirement Plans

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

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

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

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

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

﻿ |  |  |  |  |  |  |  |  |  | Other Post- |
(in thousands) |  | Pension Benefits |  |  | Retirement Benefits |
For the Three Months Ended June 30, |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Service cost |  | $ | 2,735 |  |  | $ | 3,163 |  |  | $ | 22 |  |  | $ | 28 |
Interest cost |  |  | 4,661 |  |  |  | 4,279 |  |  |  | 164 |  |  |  | 161 |
Expected return on plan assets |  |  | (11,300 | ) |  |  | (10,169 | ) |  |  | — |  |  |  | — |
Amortization of net loss and prior service costs |  |  | 2,552 |  |  |  | 1,365 |  |  |  | (228 | ) |  |  | (94 | )
Net periodic benefit cost (reduction of cost) |  | $ | (1,352 | ) |  | $ | (1,362 | ) |  | $ | (42 | ) |  | $ | 95 |

﻿ |  |  |  |  |  |  |  |  |  | Other Post- |
(in thousands) |  | Pension Benefits |  |  | Retirement Benefits |
For the Six Months Ended June 30, |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Service cost |  | $ | 5,510 |  |  | $ | 6,088 |  |  | $ | 51 |  |  | $ | 63 |
Interest cost |  |  | 9,524 |  |  |  | 8,202 |  |  |  | 292 |  |  |  | 298 |
Expected return on plan assets |  |  | (22,600 | ) |  |  | (19,869 | ) |  |  | — |  |  |  | — |
Amortization of net loss and prior service costs |  |  | 4,982 |  |  |  | 2,691 |  |  |  | (455 | ) |  |  | (243 | )
Net periodic benefit cost (reduction of cost) |  | $ | (2,584 | ) |  | $ | (2,888 | ) |  | $ | (112 | ) |  | $ | 118 |

13. Share-Based Payment Arrangements

The Company maintains incentive compensation plans that provide for awards of share-based compensation to employees and directors. These plans have been approved by the Company’s shareholders. Detailed descriptions of these plans were included in Note 17 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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

|  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Weighted |  |  | Average |  |  |  |  |
|  |  |  |  |  | Average |  |  | Remaining |  |  | Aggregate |
|  | Number of |  |  | Exercise |  |  | Contractual |  |  | Intrinsic |
Options |  | Shares |  |  | Price |  |  | Term (Years) |  |  | Value ($000) |
Outstanding at January 1, 2019 |  |  | 46,865 |  |  | $ | 31.88 |  |  |  | 2.6 |  |  | $ | 164 |
Exercised/Released |  |  | (11,804 | ) |  |  | 31.14 |  |  |  |  |  |  |  | 105 |
Cancelled/Forfeited |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |
Expired |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |
Outstanding at June, 2019 |  |  | 35,061 |  |  | $ | 32.13 |  |  |  | 2.0 |  |  | $ | 278 |
Exercisable at June 30, 2019 |  |  | 35,061 |  |  | $ | 32.13 |  |  |  | 2.0 |  |  | $ | 278 |

The total intrinsic value of options exercised during the six months ended June 30, 2019 and 2018 was $0.1 million and $0.6 million, respectively.

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

|  |  |  |  |  | Weighted |
|  |  |  |  |  | Average |
|  | Number of |  |  | Grant Date |
|  | Shares |  |  | Fair Value |
Nonvested at January 1, 2019 |  |  | 1,494,041 |  |  | $ | 39.89 |
Granted |  |  | 94,907 |  |  |  | 35.80 |
Vested |  |  | (20,290 | ) |  |  | 42.61 |
Forfeited |  |  | (23,782 | ) |  |  | 38.62 |
Nonvested at June 30, 2019 |  |  | 1,544,876 |  |  | $ | 39.62 |

As of June 30, 2019, there was $47.3 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 six months ended June 30, 2019 and 2018 was $0.6 million and $0.9 million, respectively.

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

14. Commitments and Contingencies

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

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

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

The contract amounts of these instruments reflect the Company’s exposure to credit risk. The Company undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support. The following table presents a summary of the Company’s off-balance sheet financial instruments as of June 30, 2019 and December 31, 2018:

﻿ |  | June 30, |  |  | December 31, |
(in thousands) |  | 2019 |  |  | 2018 |
Commitments to extend credit |  | $ | 6,930,220 |  |  | $ | 7,234,528 |
Letters of credit |  |  | 359,487 |  |  |  | 365,498 |

Legal Proceedings

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

15. Fair Value Measurements

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

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis in the consolidated balance sheets at June 30, 2019 and December 31, 2018:

﻿ |  | June 30, 2019 |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and government agency securities |  | $ | — |  |  | $ | 81,864 |  |  | $ | — |  |  | $ | 81,864 |
Municipal obligations |  |  | — |  |  |  | 249,341 |  |  |  | — |  |  |  | 249,341 |
Corporate debt securities |  |  | — |  |  |  | 3,500 |  |  |  | — |  |  |  | 3,500 |
Residential mortgage-backed securities |  |  | — |  |  |  | 1,367,651 |  |  |  | — |  |  |  | 1,367,651 |
Commercial mortgage-backed securities |  |  | — |  |  |  | 934,575 |  |  |  | — |  |  |  | 934,575 |
Collateralized mortgage obligations |  |  | — |  |  |  | 153,537 |  |  |  | — |  |  |  | 153,537 |
Total available for sale securities |  |  | — |  |  |  | 2,790,468 |  |  |  | — |  |  |  | 2,790,468 |
Derivative assets (1) |  |  | — |  |  |  | 51,609 |  |  |  | — |  |  |  | 51,609 |
Total recurring fair value measurements - assets |  | $ | — |  |  | $ | 2,842,077 |  |  | $ | — |  |  | $ | 2,842,077 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities (1) |  | $ | — |  |  | $ | 12,646 |  |  | $ | 6,602 |  |  | $ | 19,248 |
Total recurring fair value measurements - liabilities |  | $ | — |  |  | $ | 12,646 |  |  | $ | 6,602 |  |  | $ | 19,248 |

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

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

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

The Company invests only in securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two and five and a half years. Company policies generally limit investments to U.S. agency securities and municipal securities determined to be investment grade according to an internally generated score which generally includes a rating of not less than “Baa” or its equivalent by a nationally recognized statistical rating agency.

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

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

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

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

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

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

(in thousands) |  |  |  |
Balance at December 31, 2017 |  | $ | — |
Entry into derivative contract |  |  | 7,304 |
Balance at December 31, 2018 |  |  | 7,304 |
Cash settlements |  |  | (843 | )
Losses included in earnings |  |  | 141 |
Balance at June 30, 2019 |  | $ | 6,602 |

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

($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Fair Value |  |  |  |  |  |  |
Level 3 Class |  | June 30, 2019 |  |  | December 31, 2018 |  |  | Valuation Technique |  | Unobservable Input |  | Values Utilized
|  |  |  |  |  |  |  |  |  |  |  | Visa Class A appreciation |  | 6% - 18%
Derivative liability |  | $ | 6,602 |  |  | $ | 7,304 |  |  | Discounted cash flow |  | Conversion rate |  | 1.62x - 1.59x
|  |  |  |  |  |  |  |  |  |  |  | Time until resolution |  | 24-48 months

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

Fair Value of Assets Measured on a Nonrecurring Basis

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

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

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

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

﻿ |  | June 30, 2019 |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Collateral-dependent impaired loans |  | $ | — |  |  | $ | 168,190 |  |  | $ | — |  |  | $ | 168,190 |
Other real estate owned and foreclosed assets, net |  |  | — |  |  |  | — |  |  |  | 7,103 |  |  |  | 7,103 |
Total nonrecurring fair value measurements |  | $ | — |  |  | $ | 168,190 |  |  | $ | 7,103 |  |  | $ | 175,293 |

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

Accounting guidance from the FASB requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring basis. The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.

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

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

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

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

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

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

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

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

The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amounts:

﻿ |  | June 30, 2019 |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  | Total Fair |  |  | Carrying |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Value |  |  | Amount |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, interest-bearing bank deposits, and federal funds sold |  | $ | 516,214 |  |  | $ | — |  |  | $ | — |  |  | $ | 516,214 |  |  | $ | 516,214 |
Available for sale securities |  |  | — |  |  |  | 2,790,468 |  |  |  | — |  |  |  | 2,790,468 |  |  |  | 2,790,468 |
Held to maturity securities |  |  | — |  |  |  | 2,979,401 |  |  |  | — |  |  |  | 2,979,401 |  |  |  | 2,935,267 |
Loans, net |  |  | — |  |  |  | 168,190 |  |  |  | 19,894,266 |  |  |  | 20,062,456 |  |  |  | 19,980,187 |
Loans held for sale |  |  | — |  |  |  | 36,150 |  |  |  | — |  |  |  | 36,150 |  |  |  | 36,150 |
Derivative financial instruments |  |  | — |  |  |  | 51,609 |  |  |  | — |  |  |  | 51,609 |  |  |  | 51,609 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | — |  |  | $ | — |  |  | $ | 23,220,712 |  |  | $ | 23,220,712 |  |  | $ | 23,236,042 |
Federal funds purchased |  |  | 550 |  |  |  | — |  |  |  | — |  |  |  | 550 |  |  |  | 550 |
Securities sold under agreements to repurchase |  |  | 631,048 |  |  |  | — |  |  |  | — |  |  |  | 631,048 |  |  |  | 631,048 |
FHLB short-term borrowings |  |  | 1,010,000 |  |  |  | — |  |  |  | — |  |  |  | 1,010,000 |  |  |  | 1,010,000 |
Long-term debt |  |  | — |  |  |  | 224,547 |  |  |  | — |  |  |  | 224,547 |  |  |  | 232,754 |
Derivative financial instruments |  |  | — |  |  |  | 12,646 |  |  |  | 6,602 |  |  |  | 19,248 |  |  |  | 19,248 |

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

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16. Recent Accounting Pronouncements

Accounting Standards Adopted in 2019

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

Issued but Not Yet Adopted Accounting Standards

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

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

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

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In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU, more commonly referred to as Current Expected Credit Losses, or CECL, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better infor m their credit loss estimates. Many of the loss estimation techniques currently applied will still be permitted, although the inputs to those techniques will change to reflect the full amo unt of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. In addition, the ASU amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early application is permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is not planning to early adopt this guidance. The Company has engaged third party consultants and formed cross-functional working groups comprised of individuals from various areas including credit, finance, treasury, risk management and information technology for implementation. Five work streams have been created to develop the expected credit loss models; execute system implementation; complete balance sheet scoping; ensure the design of effective internal controls surrounding new processes; and provide execu tive oversight of the project. The Company has completed the configuration of a vendor provided software solution for which testing and implementation is expected to be compl ete in the third quarter of 2019. Validation of models began in the first quarter of 2019 and is also expected to be completed during the third quarter of 2019. The Company plans to conduct parallel testing of the estimation process during the third and fourth quarters of 2019. While the Company has not yet quantified the financial impact of adoption, the expectation is that application of this guidance will result in an increase in the allowance for loan losses given the change in methodology from covering losses inherent in the portfolio to covering losses over the remaining expected life of the portfolio. Application of the guidance is also expected to result in the establishment of an allowance for credit loss on hel d to maturity debt securities. The amount of the increase in these allowances will be impacted by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

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

FORWARD-LOOKING STATEMENTS

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

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

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

| • | loan growth expectations;

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

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

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

| • | deposit trends;

| • | credit quality trends;

| • | changes in interest rates;

| • | the impact of the change in the LIBOR benchmark;

| • | net interest margin trends;

| • | future expense levels;

| • | improvements in expense to revenue (efficiency ratio);

| • | success of revenue-generating initiatives;

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

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

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

| • | projected tax rates;

| • | future profitability;

| • | purchase accounting impacts, such as accretion levels;

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

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

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

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

| • | our ability to maintain adequate internal controls over financial reporting;

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

| • | the financial impact of future tax legislation; and

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

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

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Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 201 8 and in other periodic reports that we file with the SEC.

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

OVERVIEW

Non-GAAP Financial Measures

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

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

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

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

We define Operating Revenue as net interest income (te) and noninterest income less nonoperating revenue. We define Operating Pre-Provision Net Revenue as operating revenue (te) less noninterest expense, excluding nonoperating items. Management believes that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.

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

Pending Acquisition

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

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Current Economic Environment

Most of our market areas experienced a modest to moderate expansion in economic activity during the second quarter of 2019, according to the Federal Reserve’s Summary of Commentary on Current Economic Conditions (“Beige Book”). Overall, the economic outlook was generally positive, with some growing uncertainty due to concerns over tariffs and trade tensions. Activity in the energy sector slowed with a weaker oil price outlook and a challenging environment for funding. Oil and gas production decreased, along with capital spending and orders for new equipment.

Commercial real estate conditions continued to advance in most of our markets, with vacancies trending downward at a modest pace and an uptick in new projects. In our Houston market, apartment demand surged, however rents were flat. Industrial demand and construction remained strong.

The residential real estate market experienced increased demand with lower mortgage rates and a relatively healthy economy. Demand in most of our markets was down compared to prior year, but increased through the spring selling season. Overall, the housing market experienced moderate price appreciation and outlooks stayed positive with builders generally on plan for 2019.

Retail sales activity and consumer spending were flat to declining in most of our markets. Auto sales remained steady in our markets with continued concerns over the impact that tariffs will have on the pricing and demand in the auto industry. Tourism and hospitality industries reported healthy activity since the prior quarter. The labor market remained tight in our markets with steady wage growth.

Economic data indicates that loan growth continued at a slower pace in most of our markets, and at a faster pace in our Houston market, primarily with residential real estate and commercial and industrial lending. Financial institutions continue to report increased competition for deposits and tightening margins. We could see additional margin challenges should the Federal Reserve reduce interest rates further.

Highlights of Second Quarter 2019

Net income for the second quarter of 2019 was $88.3 million, or $1.01 per diluted common share (EPS), compared to $79.2 million, or $.91 EPS in the first quarter of 2019 and $71.2 million, or $.82 EPS, in the second quarter of 2018. The second quarter of 2019 did not include any nonoperating items, while the first quarter of 2019 included a $10.1 million ($.09 per share after-tax impact) provision for loan losses related to the alleged DC Solar fraud and the second quarter of 2018 included $15.8 million ($.14 per share after-tax impact) of nonoperating items.

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

| • | Net income was $88.3 million, or $1.01 per diluted share, an increase of $9.1 million, or $.10 per share; first quarter results were impacted by a charge-off to the provision for alleged fraud of DC Solar ($.09)

| • | Loans increased $63 million; reflects $45 million in mortgage loan sales during the quarter

| • | Energy loans declined $55 million to just under 5% of total loans

| • | Net interest margin decreased 1 basis point (bp) to 3.45%

| • | Criticized commercial loans declined $11 million, or 2% ($6 million energy and $5 million nonenergy)

| • | Tangible Common Equity ratio is up 39 bps to 8.75%

| • | Announced the MidSouth acquisition on April 30, 2019

The second quarter of 2019 results were strong, with seasonal and specialty income contributing to a 12% increase in noninterest income compared to first quarter, more than covering increased noninterest expense for the same period. Increased expenses are due in-part to seasonal salaries increases, direct costs for transaction based revenues, and additional investments in new and upgraded technology. We remain focused on managing our expenses while we invest in technology directed towards becoming more scalable, effective and efficient.

The second quarter of 2019 reflects an improvement in loan yield compared to the prior quarter despite a challenging rate environment as we continue to focus our growth in more granular loans with better spreads. Asset quality continued to improve, with criticized commercial loans down in both the energy and nonenergy portfolios.

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RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the second quarter of 2019 was $223.6 million, a $0.5 million, or less than 1%, increase from the first quarter of 2019. Compared to the second quarter of 2018, net interest income (te) for the second quarter of 2019 increased $8.0 million, or 4%. The linked quarter increase is primarily attributable to an additional accrual day and an interest recovery on a legacy Whitney CRE credit, partially offset by higher deposit costs and premium amortization on the bond portfolio.

The net interest margin (te) for the second quarter of 2019 was relatively stable at 3.45 % despite the challenging rate environment, down 1 bp from the first quarter of 2019. Net interest margin (te) was negatively impacted by higher CD renewal rates, a change in the funding mix, and higher prepayments on the bond portfolio, and almost fully offset by interest recoveries and a favorable change in the earning asset mix. Interest recoveries on problem credits have favorably impacted the net interest margin in four out of the last five quarters, adding 3 bps to the second quarter of 2019 and 1 bp in the first quarter of 2019.

Compared to the second quarter of 2018, the net interest margin (te) increased 5 bps, primarily due to an improvement in the earning asset mix and the net benefit from interest rate increases during 2018. Interest recoveries impacted the net interest margin by 1 bp compared to the second quarter of 2018.

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

|  | Three Months Ended |
|  | June 30, 2019 |  |  | March 31, 2019 |  |  | June 30, 2018 |
(dollars in millions) |  | Volume |  |  | Interest (d) |  |  | Rate |  |  | Volume |  |  | Interest (d) |  |  | Rate |  |  | Volume |  |  | Interest (d) |  |  | Rate |
Average earning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & real estate loans (te) (a) |  | $ | 15,081.9 |  |  | $ | 185.3 |  |  |  | 4.93 | % |  | $ | 15,062.1 |  |  | $ | 180.5 |  |  |  | 4.86 | % |  | $ | 14,380.9 |  |  | $ | 162.3 |  |  |  | 4.53 | %
Residential mortgage loans |  |  | 2,969.7 |  |  |  | 30.1 |  |  |  | 4.06 | % |  |  | 2,942.4 |  |  |  | 31.1 |  |  |  | 4.23 | % |  |  | 2,754.3 |  |  |  | 28.1 |  |  |  | 4.08 | %
Consumer loans |  |  | 2,098.5 |  |  |  | 30.3 |  |  |  | 5.79 | % |  |  | 2,122.4 |  |  |  | 29.9 |  |  |  | 5.72 | % |  |  | 2,058.0 |  |  |  | 27.2 |  |  |  | 5.30 | %
Loan fees & late charges |  |  | — |  |  |  | (0.1 | ) |  |  | 0.00 | % |  |  | — |  |  |  | (0.9 | ) |  |  | 0.00 | % |  |  | — |  |  |  | 0.2 |  |  |  | 0.00 | %
Total loans (te) (b) |  |  | 20,150.1 |  |  |  | 245.6 |  |  |  | 4.89 | % |  |  | 20,126.9 |  |  |  | 240.6 |  |  |  | 4.84 | % |  |  | 19,193.2 |  |  |  | 217.8 |  |  |  | 4.55 | %
Loans held for sale |  |  | 27.9 |  |  |  | 0.3 |  |  |  | 4.96 | % |  |  | 20.6 |  |  |  | 0.3 |  |  |  | 4.92 | % |  |  | 22.6 |  |  |  | 0.3 |  |  |  | 5.22 | %
US Treasury and government agency securities |  |  | 126.0 |  |  |  | 0.7 |  |  |  | 2.30 | % |  |  | 123.8 |  |  |  | 0.7 |  |  |  | 2.25 | % |  |  | 145.6 |  |  |  | 0.8 |  |  |  | 2.22 | %
Mortgage-backed securities and collateralized mortgage obligations |  |  | 4,550.1 |  |  |  | 29.0 |  |  |  | 2.55 | % |  |  | 4,599.4 |  |  |  | 29.9 |  |  |  | 2.60 | % |  |  | 4,932.0 |  |  |  | 29.3 |  |  |  | 2.38 | %
Municipals (te) |  |  | 906.8 |  |  |  | 7.1 |  |  |  | 3.12 | % |  |  | 930.0 |  |  |  | 7.4 |  |  |  | 3.17 | % |  |  | 951.0 |  |  |  | 7.6 |  |  |  | 3.18 | %
Other securities |  |  | 3.5 |  |  | 0.0 |  |  |  | 3.30 | % |  |  | 3.5 |  |  | 0.0 |  |  |  | 3.09 | % |  |  | 3.5 |  |  | 0.0 |  |  |  | 2.84 | %
Total securities (te) (c) |  |  | 5,586.4 |  |  |  | 36.8 |  |  |  | 2.64 | % |  |  | 5,656.7 |  |  |  | 38.0 |  |  |  | 2.69 | % |  |  | 6,032.1 |  |  |  | 37.7 |  |  |  | 2.50 | %
Total short-term investments |  |  | 228.5 |  |  |  | 1.4 |  |  |  | 2.36 | % |  |  | 216.2 |  |  |  | 1.2 |  |  |  | 2.18 | % |  |  | 143.1 |  |  |  | 0.6 |  |  |  | 1.61 | %
Total earning assets (te) |  | $ | 25,992.9 |  |  | $ | 284.1 |  |  |  | 4.38 | % |  | $ | 26,020.4 |  |  | $ | 280.1 |  |  |  | 4.35 | % |  | $ | 25,391.0 |  |  | $ | 256.4 |  |  |  | 4.05 | %
Average interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing transaction and savings deposits |  | $ | 8,026.0 |  |  | $ | 15.3 |  |  |  | 0.76 | % |  | $ | 8,082.6 |  |  | $ | 14.7 |  |  |  | 0.74 | % |  | $ | 7,860.0 |  |  | $ | 9.3 |  |  |  | 0.47 | %
Time deposits |  |  | 3,817.8 |  |  |  | 19.4 |  |  |  | 2.03 | % |  |  | 3,743.3 |  |  |  | 18.0 |  |  |  | 1.95 | % |  |  | 3,121.8 |  |  |  | 11.5 |  |  |  | 1.48 | %
Public funds |  |  | 3,194.1 |  |  |  | 15.2 |  |  |  | 1.91 | % |  |  | 3,060.5 |  |  |  | 13.4 |  |  |  | 1.78 | % |  |  | 2,970.1 |  |  |  | 9.1 |  |  |  | 1.22 | %
Total interest-bearing deposits |  |  | 15,037.9 |  |  |  | 49.9 |  |  |  | 1.33 | % |  |  | 14,886.4 |  |  |  | 46.1 |  |  |  | 1.26 | % |  |  | 13,951.9 |  |  |  | 29.9 |  |  |  | 0.86 | %
Short-term borrowings |  |  | 1,617.8 |  |  |  | 7.8 |  |  |  | 1.94 | % |  |  | 1,684.9 |  |  |  | 8.1 |  |  |  | 1.92 | % |  |  | 1,989.4 |  |  |  | 7.4 |  |  |  | 1.49 | %
Long-term debt |  |  | 232.3 |  |  |  | 2.8 |  |  |  | 4.86 | % |  |  | 225.0 |  |  |  | 2.8 |  |  |  | 4.99 | % |  |  | 299.7 |  |  |  | 3.5 |  |  |  | 4.63 | %
Total borrowings |  |  | 1,850.1 |  |  |  | 10.6 |  |  |  | 2.31 | % |  |  | 1,909.9 |  |  |  | 10.9 |  |  |  | 2.30 | % |  |  | 2,289.1 |  |  |  | 10.9 |  |  |  | 1.91 | %
Total interest-bearing liabilities |  |  | 16,888.0 |  |  |  | 60.5 |  |  |  | 1.44 | % |  |  | 16,796.3 |  |  |  | 57.0 |  |  |  | 1.38 | % |  |  | 16,241.0 |  |  |  | 40.8 |  |  |  | 1.01 | %
Net interest-free funding sources |  |  | 9,104.9 |  |  |  |  |  |  |  |  |  |  |  | 9,224.1 |  |  |  |  |  |  |  |  |  |  |  | 9,150.0 |  |  |  |  |  |  |  |  |
Total cost of funds |  | $ | 25,992.9 |  |  | $ | 60.5 |  |  |  | 0.93 | % |  | $ | 26,020.4 |  |  | $ | 57.0 |  |  |  | 0.89 | % |  | $ | 25,391.0 |  |  | $ | 40.8 |  |  |  | 0.64 | %
Net interest spread (te) |  |  |  |  |  | $ | 223.6 |  |  |  | 2.94 | % |  |  |  |  |  | $ | 223.1 |  |  |  | 2.97 | % |  |  |  |  |  | $ | 215.6 |  |  |  | 3.04 | %
Net interest margin |  | $ | 25,992.9 |  |  | $ | 223.6 |  |  |  | 3.45 | % |  | $ | 26,020.4 |  |  | $ | 223.1 |  |  |  | 3.46 | % |  | $ | 25,391.0 |  |  | $ | 215.6 |  |  |  | 3.40 | %

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

(b) | Includes nonaccrual loans.

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

(d) | Included in interest income is net purchase accounting accretion of $4.8 million, $5.0 million and $6.2 million for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively.

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|  | Six Months Ended |
|  | June 30, 2019 |  |  | June 30, 2018 |
(dollars in millions) |  | Volume |  |  | Interest (d) |  |  | Rate |  |  | Volume |  |  | Interest (d) |  |  | Rate |
Average earning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & real estate loans (te) (a) |  | $ | 15,072.1 |  |  | $ | 365.8 |  |  |  | 4.89 | % |  | $ | 14,303.1 |  |  | $ | 313.3 |  |  |  | 4.41 | %
Residential mortgage loans |  |  | 2,956.1 |  |  |  | 61.2 |  |  |  | 4.14 | % |  |  | 2,736.4 |  |  |  | 56.0 |  |  |  | 4.09 | %
Consumer loans |  |  | 2,110.4 |  |  |  | 60.2 |  |  |  | 5.75 | % |  |  | 2,071.8 |  |  |  | 56.2 |  |  |  | 5.47 | %
Loan fees & late charges |  |  | — |  |  |  | (1.0 | ) |  |  | 0.00 | % |  |  | — |  |  |  | 0.6 |  |  |  | 0.00 | %
Total loans (te) (b) |  |  | 20,138.6 |  |  |  | 486.2 |  |  |  | 4.86 | % |  |  | 19,111.3 |  |  |  | 426.1 |  |  |  | 4.49 | %
Loans held for sale |  |  | 24.3 |  |  |  | 0.6 |  |  |  | 4.96 | % |  |  | 27.4 |  |  |  | 0.5 |  |  |  | 3.77 | %
US Treasury and government agency securities |  |  | 124.9 |  |  |  | 1.4 |  |  |  | 2.28 | % |  |  | 147.0 |  |  |  | 1.6 |  |  |  | 2.22 | %
Mortgage-backed securities and collateralized mortgage obligations |  |  | 4,574.6 |  |  |  | 58.9 |  |  |  | 2.58 | % |  |  | 4,859.0 |  |  |  | 57.2 |  |  |  | 2.35 | %
Municipals (te) |  |  | 918.3 |  |  |  | 14.5 |  |  |  | 3.14 | % |  |  | 955.5 |  |  |  | 15.2 |  |  |  | 3.18 | %
Other securities |  |  | 3.5 |  |  |  | 0.1 |  |  |  | 3.19 | % |  |  | 3.5 |  |  | 0.0 |  |  |  | 2.45 | %
Total securities (te) (c) |  |  | 5,621.3 |  |  |  | 74.9 |  |  |  | 2.66 | % |  |  | 5,965.0 |  |  |  | 74.0 |  |  |  | 2.48 | %
Total short-term investments |  |  | 222.4 |  |  |  | 2.5 |  |  |  | 2.28 | % |  |  | 145.7 |  |  |  | 1.1 |  |  |  | 1.47 | %
Total earning assets (te) |  | $ | 26,006.6 |  |  | $ | 564.2 |  |  |  | 4.36 | % |  | $ | 25,249.4 |  |  | $ | 501.7 |  |  |  | 4.00 | %
Average interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing transaction and savings deposits |  | $ | 8,054.1 |  |  | $ | 30.0 |  |  |  | 0.75 | % |  | $ | 7,951.1 |  |  | $ | 18.4 |  |  |  | 0.47 | %
Time deposits |  |  | 3,780.8 |  |  |  | 37.4 |  |  |  | 1.99 | % |  |  | 3,050.8 |  |  |  | 21.2 |  |  |  | 1.40 | %
Public funds |  |  | 3,127.7 |  |  |  | 28.6 |  |  |  | 1.85 | % |  |  | 3,019.8 |  |  |  | 17.2 |  |  |  | 1.15 | %
Total interest-bearing deposits |  |  | 14,962.6 |  |  |  | 96.0 |  |  |  | 1.29 | % |  |  | 14,021.7 |  |  |  | 56.8 |  |  |  | 0.82 | %
Short-term borrowings |  |  | 1,651.2 |  |  |  | 15.9 |  |  |  | 1.93 | % |  |  | 1,906.7 |  |  |  | 12.8 |  |  |  | 1.35 | %
Long-term debt |  |  | 228.6 |  |  |  | 5.6 |  |  |  | 4.92 | % |  |  | 302.4 |  |  |  | 6.9 |  |  |  | 4.56 | %
Total borrowings |  |  | 1,879.8 |  |  |  | 21.5 |  |  |  | 2.31 | % |  |  | 2,209.1 |  |  |  | 19.7 |  |  |  | 1.79 | %
Total interest-bearing liabilities |  |  | 16,842.4 |  |  |  | 117.5 |  |  |  | 1.41 | % |  |  | 16,230.8 |  |  |  | 76.5 |  |  |  | 0.95 | %
Net interest-free funding sources |  |  | 9,164.2 |  |  |  |  |  |  |  |  |  |  |  | 9,018.6 |  |  |  |  |  |  |  |  |
Total cost of funds |  | $ | 26,006.6 |  |  | $ | 117.5 |  |  |  | 0.91 | % |  | $ | 25,249.4 |  |  | $ | 76.5 |  |  |  | 0.61 | %
Net interest spread (te) |  |  |  |  |  | $ | 446.7 |  |  |  | 2.96 | % |  |  |  |  |  | $ | 425.2 |  |  |  | 3.05 | %
Net interest margin |  | $ | 26,006.6 |  |  | $ | 446.7 |  |  |  | 3.45 | % |  | $ | 25,249.4 |  |  | $ | 425.2 |  |  |  | 3.39 | %

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

(b) | Includes nonaccrual loans.

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

(d) | Included in interest income is net purchase accounting accretion of $9.8 million and $12.9 million for the six months ended June 30, 2019 and 2018, respectively.

Provision for Loan Losses

During the second quarter of 2019, we recorded a provision for loan losses of $8.1 million, down $10.0 million from the first quarter of 2019 and down $0.8 million from the second quarter of 2018. Included in the first quarter 2019 provision was a $10.1 million charge-off related to the DC Solar credit discussed below. Excluding the impact of the DC Solar credit, provision expense was relatively flat compared to the prior quarter. For the six months ended June 30, 2019, we recorded a total provision for loan losses of $26.1 million, up from $21.1 million in the same period in 2018.

The Company had a lease financing facility to DC Solar, a company that sold and managed mobile solar generators. In February 2019, the borrower filed for Chapter 11 bankruptcy protection and we became aware of an affidavit from a Federal Bureau of Investigation special agent that alleged that this borrower was operating a potentially fraudulent Ponzi-type scheme and that the majority of mobile solar generators sold to investors and managed by the borrower and the majority of the related lease revenues claimed to have been received by the borrower may not have existed. The $10.1 million charge-off taken in the first quarter represents the majority of our exposure to this borrower. Management continues to believe there could be potential for recovery in the future depending on our ability to sell or re-lease the solar units.

The second quarter 2019 provision includes net charge-offs totaling $7.2 million, which represents 0.14% of average total loans on an annualized basis, compared to 0.16% in the first quarter, when adjusted to exclude the DC Solar charge-off, and 0.11% in the second quarter of 2018.

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

Noninterest Income

Noninterest income totaled $79.3 million for the second quarter of 2019, up $8.7 million, or 12%, from the first quarter of 2019 and up $10.4 million, or 15%, compared to the second quarter of 2018. The increase from the prior quarter was primarily driven by income from our specialty business lines, including derivatives, bank-owned life insurance (BOLI) and small business investment companies (SBIC), the impact of an additional business day on card activity and service charges, and seasonal trust fees. The increase compared to the second quarter of 2018 was largely driven by an increase in trust fees following the trust and asset management acquisition, as well as higher card fees and derivative income.

The components of operating and nonoperating noninterest income are presented in the following table for the indicated periods. The nonoperating item for the six months ended June 30, 2018 relates to the loss on the sale of our consumer finance subsidiary in March 2018.

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31 |  |  | June 30, |  |  | June 30, |
|  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Service charges on deposit accounts |  | $ | 20,723 |  |  | $ | 20,367 |  |  | $ | 20,981 |  |  | $ | 41,090 |  |  | $ | 42,429 |
Trust fees |  |  | 15,904 |  |  |  | 15,124 |  |  |  | 11,653 |  |  |  | 31,028 |  |  |  | 22,988 |
Bank card and ATM fees |  |  | 16,619 |  |  |  | 15,290 |  |  |  | 15,464 |  |  |  | 31,909 |  |  |  | 29,922 |
Investment and annuity fees and insurance commissions |  |  | 6,591 |  |  |  | 6,528 |  |  |  | 6,264 |  |  |  | 13,119 |  |  |  | 12,389 |
Secondary mortgage market operations |  |  | 4,433 |  |  |  | 3,726 |  |  |  | 3,965 |  |  |  | 8,159 |  |  |  | 7,366 |
Income from bank-owned life insurance |  |  | 4,083 |  |  |  | 3,265 |  |  |  | 3,113 |  |  |  | 7,348 |  |  |  | 6,183 |
Credit related fees |  |  | 2,937 |  |  |  | 2,595 |  |  |  | 2,416 |  |  |  | 5,532 |  |  |  | 5,138 |
Income from derivatives |  |  | 3,600 |  |  |  | 809 |  |  |  | 1,588 |  |  |  | 4,409 |  |  |  | 3,111 |
Gain (loss) on sales of assets |  |  | 34 |  |  |  | 397 |  |  |  | 41 |  |  |  | 431 |  |  |  | (21 | )
Other miscellaneous |  |  | 4,326 |  |  |  | 2,402 |  |  |  | 3,347 |  |  |  | 6,728 |  |  |  | 6,724 |
Total noninterest operating income |  | $ | 79,250 |  |  | $ | 70,503 |  |  | $ | 68,832 |  |  | $ | 149,753 |  |  | $ | 136,229 |
Nonoperating income items |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,145 | )
Total noninterest income |  | $ | 79,250 |  |  | $ | 70,503 |  |  | $ | 68,832 |  |  | $ | 149,753 |  |  | $ | 135,084 |

Service charges on deposits totaled $20.7 million for the second quarter of 2019, up $0.4 million, or 2%, from the first quarter of 2019 and down $0.3 million from the second quarter of 2018. The increase from the prior quarter was primarily due to an additional business day. The decrease from the second quarter of 2018 was due to lower consumer overdraft fees and service charges.

Trust fees increased $0.8 million, or 5%, linked quarter largely due to seasonal tax preparation fees. Compared to the second quarter of 2018, trust fees increased $4.3 million, or 36%, largely due to the July 2018 trust and asset management acquisition.

Bank card and ATM fees totaled $16.6 million for the second quarter of 2019, up $1.3 million, or 9%, from the first quarter of 2019, primarily due to an additional day in the quarter. Compared to the second quarter of 2018, bank card and ATM fees were up $1.2 million, or 7%, primarily due to increased card activity.

Investment and annuity fees and insurance commissions increased $0.1 million, or 1%, compared to first quarter 2019 primarily due to an increase in insurance and annuity sales, partially offset by a decrease in bond trading fees and lower underwriting activity. Investment and annuity fees and insurance commissions increased $0.3 million, or 5%, compared to second quarter 2018 due to higher investment and trading income, partially offset by a decrease in annuity sales.

Fee income from secondary mortgage market operations was up $0.7 million, or 19%, from the first quarter of 2019 and up $0.5 million, or 12%, from the second quarter of 2018. These fees will vary based on origination volume and the timing of subsequent sales. Origination volume during the second quarter of 2019 was positively impacted by both seasonality and lower interest rates.

Income from BOLI was $4.1 million in the second quarter of 2019, up $0.8 million, or 25%, from the first quarter of 2019 and up $1.0 million, or 31%, from the second quarter of 2018. The increase from the prior quarter and from the second quarter of 2018 is attributable to both mortality gains and incremental earnings on the additional investment of $33 million in April 2019. In addition, a restructuring of a portion of the BOLI portfolio in 2018 resulted in improved earnings over the second quarter of 2018.

Credit related fees were $2.9 million for the second quarter of 2019, up $0.3 million, or 13%, from the first quarter of 2019 and up $0.5 million, or 22%, from the second quarter of 2018. The linked quarter and prior year increases were due to both higher unused commitment fees and letter of credit fees.

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Income from our customer interest rate derivative program resulted in a $3.6 million net gain for the second quarter of 2019 compared to $0.8 million in the first quarter of 2019 and $1.6 million for the second quarter of 2018. Derivative income can be volatile and is dependent upon the composition of the portfolio, customer sales activity and market value adjustments due to market interest rate movement.

Other miscellaneous income of $4.3 million was up $1.9 million, or 80%, compared to the first quarter of 2019 and up $1.0 million, or 29%, compared to the second quarter of 2018. The increase compared to both periods was due largely to income from investments in small business investment companies of $1.2 million. The increase compared to the prior quarter also reflects higher syndication fees.

Noninterest income was $149.8 million in the first six months of 2019, up $14.7 million, or 11%, from the first six months of 2018. Excluding nonoperating items in the first six months of 2018, noninterest income was up $13.5 million, or 10%. Compared to the first six months of 2018, trust fees increased $8.0 million, or 35%, due to the trust and asset management acquisition in July 2018. Bank card and ATM fees were $31.9 million, up $2.0 million, or 7%, due to increased card activity. Derivative income increased $1.3 million, or 42%, with increased activity and the changing interest rate environment. BOLI income was up $1.2 million, or 19%, due to the third quarter 2018 restructure and the additional investment in April of 2019. Secondary mortgage market income was up $0.8 million, or 11%, to $8.2 million due to higher production and sales volumes. Investment and annuity fees and insurance commissions increased $0.7 million, or 6%. Service charges were down $1.3 million, or 3%, primarily due to lower consumer overdraft fees and service charges.

Noninterest Expense

Noninterest expense for the second quarter of 2019 was $183.6 million, up $7.9 million, or 4%, from the first quarter of 2019, and down $0.8 million, or less than 1%, from the second quarter of 2018. There were no nonoperating noninterest expense items in the first half of 2019. Nonoperating expenses in the second quarter of 2018 were $15.8 million and included costs associated with the brand consolidation project ($9.8 million), the acquisition of the trust and asset management business ($1.5 million), a charge related to the restructuring of a portion of our bank-owned life insurance contracts ($3.2 million), and other smaller miscellaneous items. Excluding nonoperating items, noninterest expense for the second quarter of 2019 was up $15.0 million, or 9%, from the second quarter of 2018.

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Operating expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation expense |  | $ | 87,747 |  |  | $ | 83,968 |  |  | $ | 79,670 |  |  | $ | 171,715 |  |  | $ | 156,413 |
Employee benefits |  |  | 18,888 |  |  |  | 19,730 |  |  |  | 17,165 |  |  |  | 38,618 |  |  |  | 36,788 |
Personnel expense |  |  | 106,635 |  |  |  | 103,698 |  |  |  | 96,835 |  |  |  | 210,333 |  |  |  | 193,201 |
Net occupancy expense |  |  | 12,961 |  |  |  | 11,984 |  |  |  | 11,698 |  |  |  | 24,945 |  |  |  | 22,641 |
Equipment expense |  |  | 4,342 |  |  |  | 4,679 |  |  |  | 3,641 |  |  |  | 9,021 |  |  |  | 7,134 |
Data processing expense |  |  | 20,088 |  |  |  | 19,331 |  |  |  | 17,279 |  |  |  | 39,419 |  |  |  | 33,647 |
Professional services expense |  |  | 9,665 |  |  |  | 8,168 |  |  |  | 8,189 |  |  |  | 17,833 |  |  |  | 16,036 |
Amortization of intangible assets |  |  | 5,047 |  |  |  | 5,138 |  |  |  | 5,322 |  |  |  | 10,185 |  |  |  | 10,940 |
Deposit insurance and regulatory fees |  |  | 4,755 |  |  |  | 5,406 |  |  |  | 8,376 |  |  |  | 10,161 |  |  |  | 16,324 |
Other real estate (income) expense |  |  | 395 |  |  |  | (991 | ) |  |  | (289 | ) |  |  | (596 | ) |  |  | (79 | )
Advertising |  |  | 3,253 |  |  |  | 3,080 |  |  |  | 2,390 |  |  |  | 6,333 |  |  |  | 4,731 |
Corporate value and franchise taxes |  |  | 4,215 |  |  |  | 4,042 |  |  |  | 3,577 |  |  |  | 8,257 |  |  |  | 7,017 |
Printing and supplies |  |  | 1,092 |  |  |  | 1,169 |  |  |  | 842 |  |  |  | 2,261 |  |  |  | 1,873 |
Telecommunications and postage |  |  | 3,363 |  |  |  | 3,466 |  |  |  | 3,400 |  |  |  | 6,829 |  |  |  | 7,100 |
Travel expense |  |  | 1,344 |  |  |  | 1,098 |  |  |  | 1,436 |  |  |  | 2,442 |  |  |  | 2,500 |
Entertainment and contributions |  |  | 2,742 |  |  |  | 2,708 |  |  |  | 2,950 |  |  |  | 5,450 |  |  |  | 5,459 |
Tax credit investment amortization |  |  | 1,234 |  |  |  | 1,138 |  |  |  | 875 |  |  |  | 2,372 |  |  |  | 1,749 |
Other retirement expense |  |  | (4,152 | ) |  |  | (4,105 | ) |  |  | (4,458 | ) |  |  | (8,257 | ) |  |  | (8,921 | )
Other miscellaneous |  |  | 6,588 |  |  |  | 5,691 |  |  |  | 6,534 |  |  |  | 12,279 |  |  |  | 12,183 |
Total operating expense |  | $ | 183,567 |  |  | $ | 175,700 |  |  | $ | 168,597 |  |  | $ | 359,267 |  |  | $ | 333,535 |
Nonoperating expense items |  |  | — |  |  |  | — |  |  |  | 15,805 |  |  |  | — |  |  |  | 21,658 |
Total noninterest expense |  | $ | 183,567 |  |  | $ | 175,700 |  |  | $ | 184,402 |  |  | $ | 359,267 |  |  | $ | 355,193 |

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|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Nonoperating expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Personnel expense |  | $ | — |  |  | $ | — |  |  | $ | 408 |  |  | $ | — |  |  | $ | 4,016 |
Net occupancy expense |  |  | — |  |  |  | — |  |  |  | 618 |  |  |  | — |  |  |  | 685 |
Equipment expense |  |  | — |  |  |  | — |  |  |  | 621 |  |  |  | — |  |  |  | 674 |
Data processing expense |  |  | — |  |  |  | — |  |  |  | 994 |  |  |  | — |  |  |  | 1,075 |
Professional services expense |  |  | — |  |  |  | — |  |  |  | 5,192 |  |  |  | — |  |  |  | 6,600 |
Advertising |  |  | — |  |  |  | — |  |  |  | 1,127 |  |  |  | — |  |  |  | 1,312 |
Printing and supplies |  |  | — |  |  |  | — |  |  |  | 846 |  |  |  | — |  |  |  | 1,101 |
Loss on restructure of bank-owned life insurance contracts |  |  | — |  |  |  | — |  |  |  | 3,240 |  |  |  | — |  |  |  | 3,240 |
Other expense |  |  | — |  |  |  | — |  |  |  | 2,759 |  |  |  | — |  |  |  | 2,955 |
Total nonoperating expenses |  | $ | — |  |  | $ | — |  |  | $ | 15,805 |  |  | $ | — |  |  | $ | 21,658 |

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

Personnel expense totaled $106.6 million for the second quarter of 2019, up $2.9 million, or 3%, compared to the prior quarter, primarily due to an additional payroll day and a full quarter impact of annual merit increases. Compared to the second quarter of 2018, personnel costs were up $9.8 million, or 10%, primarily as a result of merit increases and an increase in headcount following the trust and asset management acquisition.

Occupancy and equipment expenses totaled $17.3 million in the second quarter of 2019, up $ 0.6 million, or 4%, from the first quarter of 2019 and up $2.0 million, or 13%, from the second quarter of 2018. The increase compared to the prior quarter is largely due to annual insurance payments in the second quarter of 2019. The increase compared to the second quarter of 2018 is largely attributable to both the move of the New Orleans regional headquarters and the trust and asset management acquisition.

Data processing expense was $20.1 million for the second quarter of 2019, up $0.8 million, or 4%, from the first quarter of 2019, and up $2.8 million, or 16%, from the second quarter of 2018. The increase from the second quarter of 2018 was primarily due to additional processing cost related to the acquired trust and asset management business and recent investment in new technologies.

Professional services expense totaled $9.7 million in the second quarter of 2019, up $1.5 million, or 18%, compared to both the previous quarter and the same period in 2018. The increase from each of these prior periods was largely due to consulting costs associated with systems conversion for the acquired trust and asset management business, and related to investment in new technology aimed at becoming more scalable, effective and efficient.

Deposit insurance and regulatory fees and corporate value and franchise taxes were $9.0 million, down $0.5 million, or 5%, from the first quarter of 2019 and down $3.0 million, or 25%, from the second quarter of 2018. The decrease from both the prior quarter and the same period in 2018 is primarily due to a reduction in the risk-based deposit insurance assessment fees, with the year over year variance also favorably impacted by the elimination of the quarterly deposit insurance fund surcharge.

Business development-related expenses (including advertising, travel, entertainment and contributions) were $7.3 million for the second quarter of 2019, up $0.5 million, or 7%, from the first quarter of 2019 and up $0.5 million, or 8%, from the second quarter of 2018. The primary driver of the linked-quarter and year-over-year increases is higher advertising cost, including new sponsorships.

Other real estate net expense was $0.4 million for the second quarter of 2019, compared to net gains of $1.0 million in the first quarter of 2019 and net gains of $0.3 million in the second quarter of 2018. Management believes that the second quarter of 2019 reflects a typical level of net ORE expense.

All other expenses, excluding amortization of intangibles, totaled $8.1 million for the second quarter of 2019, up $0.8 million, or 10%, from the first quarter of 2019, and up $0.9 million, or 13%, from the second quarter of 2018. The increase compared to prior quarter was due to higher other miscellaneous expense, which includes operational losses that can vary period to period. The increase compared to the same period in 2018 was largely driven by changes in tax credit investment expense and the net credit in other retirement expense.

For the first six months of 2019, noninterest expense was $359.3 million, an increase of $4.1 million, or 1%, from the same period in 2018. Nonoperating expense for the first half of 2018 totaled $21.7 million, including costs associated with the brand consolidation, acquisition of the trust and asset management business, a charge related to the restructure of our bank-owned life insurance contracts, as well as a one-time all hands bonus and other miscellaneous items. Excluding nonoperating items, noninterest expense was up $25.7

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million, or 8%, from the first half of 2018. Personnel expense totaled $210.3 million, up $17.1 million, or 9%. Occupancy and equipment expenses totaled $34.0 million for the first six months of 2018, up $4.2 million, or 14%. Data processing expense was $39.4 million, an increase of $5.8 million, or 17%. Professional service expense was $17.8 million for the first half of 2019, up $1.8 million or 11%. Deposit insurance and regulatory fees and corporate value and franchise taxes were down $4.9 million, or 21%. Business development-related expenses were $14.2 million, up $1.5 million, or 12%. All other expenses, excluding amortization of intangibles, were up $1.5 million, or 11%. Noninterest expense variances when comparing the six months ended June 30, 2019 and 2018 are in large part attributable to the same factors that contributed to variances between the second quarters of 2019 and 2018, as described above.

Income Taxes

The effective income tax rate for the second quarter of 2019 was approximately 17.9%, compared to 17.6% in the first quarter of 2019 and 18.3% in the second quarter of 2018. Management expects the effective tax rate for 2019 will be in the range of 17% to 19% based on current forecasts. Our effective tax rate has historically varied from the federal statutory rate primarily because of tax-exempt income and tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the life insurance contract program are the major components of tax-exempt income. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets the Company serves and are directed at tax credits issued under the Qualified Zone Academy Bonds (“QZAB”), Qualified School Construction Bonds (“QSCB”) as well as Federal and State New Market Tax Credit (“NMTC”) programs. The investments generate tax credits, which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. The Tax Act repealed the provision related to tax credit bonds effective for bonds issued after December 31, 2017.

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

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

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Taxes computed at statutory rate |  | $ | 22,567 |  |  | $ | 20,163 |  |  | $ | 18,288 |  |  | $ | 42,730 |  |  | $ | 36,951 |
Tax credits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
QZAB/QSCB |  |  | (710 | ) |  |  | (710 | ) |  |  | (760 | ) |  |  | (1,420 | ) |  |  | (1,519 | )
NMTC - Federal and State |  |  | (1,999 | ) |  |  | (1,402 | ) |  |  | (1,378 | ) |  |  | (3,401 | ) |  |  | (2,757 | )
Total tax credits |  |  | (2,709 | ) |  |  | (2,112 | ) |  |  | (2,138 | ) |  |  | (4,821 | ) |  |  | (4,276 | )
State income taxes, net of federal income tax benefit |  |  | 1,756 |  |  |  | 1,905 |  |  |  | 1,924 |  |  |  | 3,661 |  |  |  | 3,968 |
Tax-exempt interest |  |  | (2,274 | ) |  |  | (2,417 | ) |  |  | (2,761 | ) |  |  | (4,691 | ) |  |  | (5,547 | )
Life insurance contracts |  |  | (927 | ) |  |  | (678 | ) |  |  | 306 |  |  |  | (1,605 | ) |  |  | (624 | )
Employee share-based compensation |  |  | (74 | ) |  |  | (272 | ) |  |  | (176 | ) |  |  | (346 | ) |  |  | (316 | )
Impact from interim estimated effective tax rate |  |  | 27 |  |  |  | (776 | ) |  |  | (844 | ) |  |  | (749 | ) |  |  | (488 | )
FDIC Assessment Disallowance |  |  | 379 |  |  |  | 545 |  |  |  | 758 |  |  |  | 924 |  |  |  | 1,505 |
Other, net |  |  | 441 |  |  |  | 492 |  |  |  | 552 |  |  |  | 933 |  |  |  | 1,133 |
Income tax expense |  | $ | 19,186 |  |  | $ | 16,850 |  |  | $ | 15,909 |  |  | $ | 36,036 |  |  | $ | 32,306 |

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Selected Financial Data

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
|  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Common Share Data |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 1.01 |  |  | $ | 0.91 |  |  | $ | 0.82 |  |  | $ | 1.92 |  |  | $ | 1.65 |
Diluted |  | $ | 1.01 |  |  | $ | 0.91 |  |  | $ | 0.82 |  |  | $ | 1.92 |  |  | $ | 1.65 |
Cash dividends paid |  | $ | 0.27 |  |  | $ | 0.27 |  |  | $ | 0.24 |  |  | $ | 0.54 |  |  | $ | 0.48 |
Book value per share (period-end) |  | $ | 38.70 |  |  | $ | 37.23 |  |  | $ | 34.33 |  |  | $ | 38.70 |  |  | $ | 34.33 |
Tangible book value per share (period-end) |  | $ | 28.46 |  |  | $ | 26.92 |  |  | $ | 24.66 |  |  | $ | 28.46 |  |  | $ | 24.66 |
Weighted average number of shares (000s): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 85,728 |  |  |  | 85,688 |  |  |  | 85,305 |  |  |  | 85,708 |  |  |  | 85,273 |
Diluted |  |  | 85,835 |  |  |  | 85,800 |  |  |  | 85,483 |  |  |  | 85,810 |  |  |  | 85,451 |
Period-end number of shares (000s) |  |  | 85,759 |  |  |  | 85,710 |  |  |  | 85,335 |  |  |  | 85,759 |  |  |  | 85,335 |
Market data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
High sales price |  | $ | 44.74 |  |  | $ | 44.34 |  |  | $ | 53.60 |  |  | $ | 44.74 |  |  | $ | 56.40 |
Low sales price |  | $ | 37.03 |  |  | $ | 34.11 |  |  | $ | 45.76 |  |  | $ | 34.11 |  |  | $ | 45.76 |
Period-end closing price |  | $ | 40.06 |  |  | $ | 40.40 |  |  | $ | 46.65 |  |  | $ | 40.06 |  |  | $ | 46.65 |
Trading volume (000s) (a) |  |  | 27,874 |  |  |  | 28,124 |  |  |  | 35,705 |  |  |  | 55,998 |  |  |  | 71,075 |

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Income Statement: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  | $ | 280,378 |  |  | $ | 276,283 |  |  | $ | 252,304 |  |  | $ | 556,661 |  |  | $ | 493,699 |
Interest income (te) (a) |  |  | 284,096 |  |  |  | 280,107 |  |  |  | 256,385 |  |  |  | 564,203 |  |  |  | 501,743 |
Interest expense |  |  | 60,510 |  |  |  | 57,029 |  |  |  | 40,757 |  |  |  | 117,539 |  |  |  | 76,488 |
Net interest income (te) |  |  | 223,586 |  |  |  | 223,078 |  |  |  | 215,628 |  |  |  | 446,664 |  |  |  | 425,255 |
Provision for loan and lease losses |  |  | 8,088 |  |  |  | 18,043 |  |  |  | 8,891 |  |  |  | 26,131 |  |  |  | 21,144 |
Noninterest income |  |  | 79,250 |  |  |  | 70,503 |  |  |  | 68,832 |  |  |  | 149,753 |  |  |  | 135,084 |
Noninterest expense (excluding amortization of intangibles) |  |  | 178,520 |  |  |  | 170,562 |  |  |  | 179,080 |  |  |  | 349,082 |  |  |  | 344,253 |
Amortization of intangibles |  |  | 5,047 |  |  |  | 5,138 |  |  |  | 5,322 |  |  |  | 10,185 |  |  |  | 10,940 |
Income before income taxes |  |  | 107,463 |  |  |  | 96,014 |  |  |  | 87,086 |  |  |  | 203,477 |  |  |  | 175,958 |
Income tax expense |  |  | 19,186 |  |  |  | 16,850 |  |  |  | 15,909 |  |  |  | 36,036 |  |  |  | 32,306 |
Net income |  | $ | 88,277 |  |  | $ | 79,164 |  |  | $ | 71,177 |  |  | $ | 167,441 |  |  | $ | 143,652 |
Earnings excluding nonoperating items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 88,277 |  |  | $ | 79,164 |  |  | $ | 71,177 |  |  | $ | 167,441 |  |  | $ | 143,652 |
Provision for alleged fraud (b) |  |  | — |  |  |  | 10,084 |  |  |  | — |  |  |  | 10,084 |  |  |  | — |
Nonoperating income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,145 |
Nonoperating expense |  |  | — |  |  |  | — |  |  |  | 15,805 |  |  |  | — |  |  |  | 21,658 |
Income tax benefit |  |  | — |  |  |  | (2,118 | ) |  |  | (3,319 | ) |  |  | (2,118 | ) |  |  | (4,535 | )
Nonoperating items, net of applicable income tax benefit |  |  | — |  |  |  | 7,966 |  |  |  | 12,486 |  |  |  | 7,966 |  |  |  | 18,268 |
Operating earnings |  | $ | 88,277 |  |  | $ | 87,130 |  |  | $ | 83,663 |  |  | $ | 175,407 |  |  | $ | 161,920 |

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|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
|  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Performance Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Return on average assets |  |  | 1.24 | % |  |  | 1.13 | % |  |  | 1.04 | % |  |  | 1.18 | % |  |  | 1.06 | %
Return on average common equity |  |  | 10.96 | % |  |  | 10.30 | % |  |  | 9.81 | % |  |  | 10.64 | % |  |  | 10.02 | %
Return on average tangible common equity |  |  | 15.07 | % |  |  | 14.38 | % |  |  | 13.72 | % |  |  | 14.73 | % |  |  | 14.06 | %
Earning asset yield (te) (a) |  |  | 4.38 | % |  |  | 4.35 | % |  |  | 4.05 | % |  |  | 4.36 | % |  |  | 4.00 | %
Total cost of funds |  |  | 0.93 | % |  |  | 0.89 | % |  |  | 0.64 | % |  |  | 0.91 | % |  |  | 0.61 | %
Net interest margin (te) |  |  | 3.45 | % |  |  | 3.46 | % |  |  | 3.40 | % |  |  | 3.45 | % |  |  | 3.39 | %
Noninterest income to total revenue (te) |  |  | 26.17 | % |  |  | 24.01 | % |  |  | 24.20 | % |  |  | 25.11 | % |  |  | 24.11 | %
Average loan/deposit ratio |  |  | 87.09 | % |  |  | 87.08 | % |  |  | 86.84 | % |  |  | 87.08 | % |  |  | 86.58 | %
FTE employees (period-end) |  |  | 3,930 |  |  |  | 3,885 |  |  |  | 3,780 |  |  |  | 3,930 |  |  |  | 3,780 |
Capital Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stockholders' equity to total assets |  |  | 11.54 | % |  |  | 11.20 | % |  |  | 10.49 | % |  |  | 11.54 | % |  |  | 10.49 | %
Tangible common equity ratio (c) |  |  | 8.75 | % |  |  | 8.36 | % |  |  | 7.76 | % |  |  | 8.75 | % |  |  | 7.76 | %
Select performance measures excluding nonoperating items (d) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating earnings per share - diluted |  | $ | 1.01 |  |  | $ | 1.00 |  |  | $ | 0.96 |  |  | $ | 2.01 |  |  | $ | 1.86 |
Return on average assets - operating |  |  | 1.24 | % |  |  | 1.24 | % |  |  | 1.22 | % |  |  | 1.24 | % |  |  | 1.19 | %
Return on average common equity - operating |  |  | 10.96 | % |  |  | 11.33 | % |  |  | 11.54 | % |  |  | 11.14 | % |  |  | 11.29 | %
Return on average tangible common equity - operating |  |  | 15.07 | % |  |  | 15.83 | % |  |  | 16.12 | % |  |  | 15.44 | % |  |  | 15.85 | %
Efficiency ratio (e) |  |  | 58.95 | % |  |  | 58.10 | % |  |  | 57.40 | % |  |  | 58.53 | % |  |  | 57.45 | %
Noninterest income as a percent of total revenue (te) - operating |  |  | 26.17 | % |  |  | 24.01 | % |  |  | 24.20 | % |  |  | 25.11 | % |  |  | 24.26 | %

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

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

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

(d) | See Reconciliation of Non-GAAP Measures, including “Operating earnings,” “Operating earnings per share – diluted” and the related components of nonoperating revenue and expense used in these Non-GAAP measures.

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
($ in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Asset Quality Information |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonaccrual loans (a) |  | $ | 209,831 |  |  | $ | 204,831 |  |  | $ | 241,681 |  |  | $ | 209,831 |  |  | $ | 241,681 |
Restructured loans - still accruing |  |  | 101,250 |  |  |  | 117,578 |  |  |  | 152,507 |  |  |  | 101,250 |  |  |  | 152,507 |
Total nonperforming loans |  |  | 311,081 |  |  |  | 322,409 |  |  |  | 394,188 |  |  |  | 311,081 |  |  |  | 394,188 |
Other real estate (ORE) and foreclosed assets |  |  | 27,520 |  |  |  | 27,148 |  |  |  | 22,342 |  |  |  | 27,520 |  |  |  | 22,342 |
Total nonperforming assets |  | $ | 338,601 |  |  | $ | 349,557 |  |  | $ | 416,530 |  |  | $ | 338,601 |  |  | $ | 416,530 |
Accruing loans 90 days past due (b) |  | $ | 6,493 |  |  | $ | 20,308 |  |  | $ | 7,941 |  |  | $ | 6,493 |  |  | $ | 7,941 |
Net charge-offs |  |  | 7,151 |  |  |  | 17,869 |  |  |  | 5,074 |  |  |  | 25,020 |  |  |  | 17,274 |
Allowance for loan and lease losses |  |  | 195,625 |  |  |  | 194,688 |  |  |  | 214,530 |  |  |  | 195,625 |  |  |  | 214,530 |
Provision for loan and lease losses |  |  | 8,088 |  |  |  | 18,043 |  |  |  | 8,891 |  |  |  | 26,131 |  |  |  | 21,144 |
Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonperforming assets to loans, ORE and foreclosed assets |  |  | 1.68 | % |  |  | 1.74 | % |  |  | 2.15 | % |  |  | 1.68 | % |  |  | 2.15 | %
Accruing loans 90 days past due to loans |  |  | 0.03 | % |  |  | 0.10 | % |  |  | 0.04 | % |  |  | 0.03 | % |  |  | 0.04 | %
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets |  |  | 1.71 | % |  |  | 1.84 | % |  |  | 2.19 | % |  |  | 1.71 | % |  |  | 2.19 | %
Net charge-offs to average loans |  |  | 0.14 | % |  |  | 0.36 | % |  |  | 0.11 | % |  |  | 0.25 | % |  |  | 0.18 | %
Allowance for loan losses to period-end loans |  |  | 0.97 | % |  |  | 0.97 | % |  |  | 1.11 | % |  |  | 0.97 | % |  |  | 1.11 | %
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due |  |  | 61.60 | % |  |  | 56.81 | % |  |  | 53.35 | % |  |  | 61.60 | % |  |  | 53.35 | %

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(a) | Included in nonaccrual loans are nonaccruing restructured loan s totaling $99.1 million, $105.9 million and $98.8 million at 6/30/2019, 3/31/2019 and 6/30/2018, respectively. Nonaccrual loans and accruing loans past due 90 days or more do not include purchased credit impaired loans which were written down to fair value upon acquisition and accrete interest income over the remaining life of the loan.

(b) | Excludes 90+ accruing troubled debt restructured loans already reflected in total nonperforming loans of $1.5 million and $1.9 million as of 3/31/19 and 6/30/18, respectively.

|  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2018 |  |  | 2018 |
Period-End Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total loans, net of unearned income (a) |  | $ | 20,175,812 |  |  | $ | 20,112,838 |  |  | $ | 20,026,411 |  |  | $ | 19,543,717 |  |  | $ | 19,370,917 |
Loans held for sale |  |  | 36,150 |  |  |  | 27,437 |  |  |  | 28,150 |  |  |  | 29,043 |  |  |  | 36,047 |
Securities |  |  | 5,725,735 |  |  |  | 5,577,522 |  |  |  | 5,670,584 |  |  |  | 5,987,447 |  |  |  | 6,113,873 |
Short-term investments |  |  | 151,062 |  |  |  | 163,762 |  |  |  | 111,094 |  |  |  | 108,074 |  |  |  | 104,210 |
Earning assets |  |  | 26,088,759 |  |  |  | 25,881,559 |  |  |  | 25,836,239 |  |  |  | 25,668,281 |  |  |  | 25,625,047 |
Allowance for loan losses |  |  | (195,625 | ) |  |  | (194,688 | ) |  |  | (194,514 | ) |  |  | (214,550 | ) |  |  | (214,530 | )
Goodwill and other intangible assets |  |  | 878,051 |  |  |  | 883,097 |  |  |  | 887,123 |  |  |  | 892,595 |  |  |  | 825,223 |
Other assets |  |  | 1,990,678 |  |  |  | 1,920,263 |  |  |  | 1,707,059 |  |  |  | 1,751,849 |  |  |  | 1,689,707 |
Total assets |  | $ | 28,761,863 |  |  | $ | 28,490,231 |  |  | $ | 28,235,907 |  |  | $ | 28,098,175 |  |  | $ | 27,925,447 |
Noninterest-bearing deposits |  | $ | 8,114,632 |  |  | $ | 8,158,658 |  |  | $ | 8,499,027 |  |  | $ | 8,140,530 |  |  | $ | 8,165,796 |
Interest-bearing transaction and savings deposits |  |  | 8,034,801 |  |  |  | 8,224,203 |  |  |  | 8,000,093 |  |  |  | 7,972,417 |  |  |  | 7,711,542 |
Interest-bearing public funds deposits |  |  | 3,159,790 |  |  |  | 3,229,589 |  |  |  | 3,006,516 |  |  |  | 2,613,858 |  |  |  | 2,854,839 |
Time deposits |  |  | 3,926,819 |  |  |  | 3,767,844 |  |  |  | 3,644,549 |  |  |  | 3,691,002 |  |  |  | 3,503,161 |
Total interest-bearing deposits |  |  | 15,121,410 |  |  |  | 15,221,636 |  |  |  | 14,651,158 |  |  |  | 14,277,277 |  |  |  | 14,069,542 |
Total deposits |  |  | 23,236,042 |  |  |  | 23,380,294 |  |  |  | 23,150,185 |  |  |  | 22,417,807 |  |  |  | 22,235,338 |
Short-term borrowings |  |  | 1,641,598 |  |  |  | 1,388,735 |  |  |  | 1,589,128 |  |  |  | 2,276,647 |  |  |  | 2,314,190 |
Long-term debt |  |  | 232,754 |  |  |  | 224,962 |  |  |  | 224,993 |  |  |  | 215,912 |  |  |  | 266,009 |
Other liabilities |  |  | 332,554 |  |  |  | 305,665 |  |  |  | 190,261 |  |  |  | 208,931 |  |  |  | 180,355 |
Stockholders' equity |  |  | 3,318,915 |  |  |  | 3,190,575 |  |  |  | 3,081,340 |  |  |  | 2,978,878 |  |  |  | 2,929,555 |
Total liabilities & stockholders' equity |  | $ | 28,761,863 |  |  | $ | 28,490,231 |  |  | $ | 28,235,907 |  |  | $ | 28,098,175 |  |  | $ | 27,925,447 |

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Average Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total loans, net of unearned income (a) |  | $ | 20,150,104 |  |  | $ | 20,126,948 |  |  | $ | 19,193,234 |  |  | $ | 20,138,590 |  |  | $ | 19,111,318 |
Loans held for sale |  |  | 27,873 |  |  |  | 20,618 |  |  |  | 22,575 |  |  |  | 24,266 |  |  |  | 27,358 |
Securities (b) |  |  | 5,586,390 |  |  |  | 5,656,689 |  |  |  | 6,032,058 |  |  |  | 5,621,345 |  |  |  | 5,965,046 |
Short-term investments |  |  | 228,527 |  |  |  | 216,192 |  |  |  | 143,158 |  |  |  | 222,394 |  |  |  | 145,719 |
Earning assets |  |  | 25,992,894 |  |  |  | 26,020,447 |  |  |  | 25,391,025 |  |  |  | 26,006,595 |  |  |  | 25,249,441 |
Allowance for loan losses |  |  | (195,238 | ) |  |  | (196,384 | ) |  |  | (212,766 | ) |  |  | (195,808 | ) |  |  | (214,770 | )
Goodwill and other intangible assets |  |  | 880,497 |  |  |  | 885,381 |  |  |  | 827,760 |  |  |  | 882,926 |  |  |  | 830,499 |
Other assets |  |  | 1,859,657 |  |  |  | 1,742,104 |  |  |  | 1,479,033 |  |  |  | 1,801,204 |  |  |  | 1,496,580 |
Total assets |  | $ | 28,537,810 |  |  | $ | 28,451,548 |  |  | $ | 27,485,052 |  |  | $ | 28,494,917 |  |  | $ | 27,361,750 |
Noninterest-bearing deposits |  | $ | 8,099,621 |  |  | $ | 8,227,698 |  |  | $ | 8,149,521 |  |  | $ | 8,163,306 |  |  | $ | 8,050,870 |
Interest-bearing transaction and savings deposits |  |  | 8,026,012 |  |  |  | 8,082,584 |  |  |  | 7,860,019 |  |  |  | 8,054,141 |  |  |  | 7,951,092 |
Interest-bearing public fund deposits |  |  | 3,194,113 |  |  |  | 3,060,565 |  |  |  | 2,970,117 |  |  |  | 3,127,708 |  |  |  | 3,019,821 |
Time deposits |  |  | 3,817,817 |  |  |  | 3,743,292 |  |  |  | 3,121,817 |  |  |  | 3,780,761 |  |  |  | 3,050,825 |
Total interest-bearing deposits |  |  | 15,037,942 |  |  |  | 14,886,441 |  |  |  | 13,951,953 |  |  |  | 14,962,610 |  |  |  | 14,021,738 |
Total deposits |  |  | 23,137,563 |  |  |  | 23,114,139 |  |  |  | 22,101,474 |  |  |  | 23,125,916 |  |  |  | 22,072,608 |
Short-term borrowings |  |  | 1,617,776 |  |  |  | 1,684,904 |  |  |  | 1,989,416 |  |  |  | 1,651,155 |  |  |  | 1,906,684 |
Long-term debt |  |  | 232,277 |  |  |  | 224,966 |  |  |  | 299,695 |  |  |  | 228,642 |  |  |  | 302,391 |
Other liabilities |  |  | 319,691 |  |  |  | 309,488 |  |  |  | 185,470 |  |  |  | 314,616 |  |  |  | 189,062 |
Stockholders' equity |  |  | 3,230,503 |  |  |  | 3,118,051 |  |  |  | 2,908,997 |  |  |  | 3,174,588 |  |  |  | 2,891,005 |
Total liabilities & stockholders' equity |  | $ | 28,537,810 |  |  | $ | 28,451,548 |  |  | $ | 27,485,052 |  |  | $ | 28,494,917 |  |  | $ | 27,361,750 |

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

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Reconciliation of Non-GAAP Measures

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

|  | Three Months Ended |  |  | Six Months |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net interest income |  | $ | 219,868 |  |  | $ | 219,254 |  |  | $ | 211,547 |  |  | $ | 439,122 |  |  | $ | 417,211 |
Noninterest income |  |  | 79,250 |  |  |  | 70,503 |  |  |  | 68,832 |  |  |  | 149,753 |  |  |  | 135,084 |
Total revenue |  | $ | 299,118 |  |  | $ | 289,757 |  |  | $ | 280,379 |  |  | $ | 588,875 |  |  | $ | 552,295 |
Tax-equivalent adjustment (a) |  |  | 3,718 |  |  |  | 3,824 |  |  |  | 4,081 |  |  |  | 7,542 |  |  |  | 8,044 |
Nonoperating revenue |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,145 |
Operating revenue (te) |  | $ | 302,836 |  |  | $ | 293,581 |  |  | $ | 284,460 |  |  | $ | 596,417 |  |  | $ | 561,484 |
Noninterest expense |  |  | (183,567 | ) |  |  | (175,700 | ) |  |  | (184,402 | ) |  |  | (359,267 | ) |  |  | (355,193 | )
Nonoperating expense |  |  | — |  |  |  | — |  |  |  | 15,805 |  |  |  | — |  |  |  | 21,658 |
Operating pre-prevision net revenue (te) |  | $ | 119,269 |  |  | $ | 117,881 |  |  | $ | 115,863 |  |  | $ | 237,150 |  |  | $ | 227,949 |

Operating earnings per share - diluted

|  | Three Months Ended |  |  | Six Months |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net income |  | $ | 88,277 |  |  | $ | 79,164 |  |  | $ | 71,177 |  |  | $ | 167,441 |  |  | $ | 143,652 |
Net income allocated to participating securities |  |  | (1,502 | ) |  |  | (1,337 | ) |  |  | (1,328 | ) |  |  | (2,839 | ) |  |  | (2,694 | )
Net income available to common shareholders |  |  | 86,775 |  |  |  | 77,827 |  |  |  | 69,849 |  |  |  | 164,602 |  |  |  | 140,958 |
Nonoperating items, net of applicable income tax |  |  | — |  |  |  | 7,966 |  |  |  | 12,486 |  |  |  | 7,966 |  |  |  | 18,268 |
Nonoperating items allocated to participating securities |  |  | — |  |  |  | (134 | ) |  |  | (233 | ) |  |  | (134 | ) |  |  | (342 | )
Operating earnings available to common shareholders |  |  | 86,775 |  |  |  | 85,659 |  |  |  | 82,102 |  |  |  | 172,434 |  |  |  | 158,884 |
Weighted average common shares - diluted |  |  | 85,835 |  |  |  | 85,800 |  |  |  | 85,483 |  |  |  | 85,810 |  |  |  | 85,451 |
Earnings per share - diluted |  | $ | 1.01 |  |  | $ | 0.91 |  |  | $ | 0.82 |  |  | $ | 1.92 |  |  | $ | 1.65 |
Operating earnings per share - diluted |  | $ | 1.01 |  |  | $ | 1.00 |  |  | $ | 0.96 |  |  | $ | 2.01 |  |  | $ | 1.86 |

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

LIQUIDITY

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

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities and repayments of investment securities and occasional sales of various assets. Short-term investments such as federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional sources of liquidity to meet cash flow requirements. Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window. Management has established an internal target for the ratio of free securities to total securities to be 20% or more. As shown in the table below, our ratio of free securities to total securities was 40.10% at June 30, 2019, compared to 33.57% at March 31, 2019 and 49.31% at June 30, 2018. The total of pledged securities at June 30, 2019 was $3.5 billion, down $278.9 million from March 31, 2019. Securities are pledged as collateral related to public funds and repurchase agreements. Total pledged securities were up $148.6 million compared to March 31, 2019 and $362.0 million lower than at June 30, 2018.

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|  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
Liquidity Metrics |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2018 |  |  | 2018 |
Free securities / total securities |  |  | 40.10 | % |  |  | 33.57 | % |  |  | 41.39 | % |  |  | 48.90 | % |  |  | 49.31 | %
Core deposits / total deposits |  |  | 89.30 | % |  |  | 89.98 | % |  |  | 90.47 | % |  |  | 89.71 | % |  |  | 89.65 | %
Wholesale funds / core deposits |  |  | 15.13 | % |  |  | 13.61 | % |  |  | 14.53 | % |  |  | 19.34 | % |  |  | 19.93 | %
Quarter-to-date average loans /quarter-to-date average deposits |  |  | 87.09 | % |  |  | 87.08 | % |  |  | 88.09 | % |  |  | 88.39 | % |  |  | 86.84 | %

The liability portion of the balance sheet provides liquidity mainly through the Company’s ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit and sweep accounts. At June 30, 2019, deposits totaled $23.2 billion, a decrease of $144.3 million, or 1%, from March 31, 2019 and an increase of $1.0 billion, or 5%, from June 30, 2018. Core deposits consist of total deposits excluding certificates of deposit (“CDs”) of $250,000 or more and brokered deposits. Core deposits totaled $20.7 billion at June 30, 2019, a decrease of $289.3 million from March 31, 2019, and an increase of $816.2 million from June 30, 2018. The ratio of core deposits to total deposits was 89.30% at June 30, 2019, compared to 89.98% at March 31, 2019 and 89.65% at June 30, 2018. Brokered deposits totaled $1.3 billion as of June 30, 2019, an increase of $15 million compared to March 31, 2019 and a decrease of $105.2 million compared to June 30, 2018. The use of brokered deposits as a funding source is subject to certain policies regarding the amount, term and interest rate.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings from customers provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, the Bank has a line of credit with the FHLB that is secured by blanket pledges of certain mortgage loans. At June 30, 2019, the Bank had borrowings of approximately $1.0 billion and had approximately $3.8 billion available under this line. The Bank also has unused borrowing capacity at the Federal Reserve’s discount window of approximately $2.6 billion; there were no outstanding borrowings with the Federal Reserve at any date during any period covered by this report.

Wholesale funds, which are comprised of short-term borrowings, long-term debt and brokered deposits were 15.13% of core deposits at June 30, 2019, compared to 13.61% at March 31, 2019 and 19.93% at June 30, 2018. The linked quarter increase in wholesale funds was primarily related to increases in repurchase agreements and FHLB borrowings. The year over year decrease in wholesale funds was primarily related to decreases in FHLB borrowings and brokered certificates deposits, partially offset by an increase in repurchase agreements. The Company has established an internal target for wholesale funds to be less than 25% of core deposits.

Another key measure used to monitor our liquidity position is the loan-to-deposit ratio (average loans outstanding for the reporting period divided by average deposits outstanding). The loan-to-deposit ratio measures the amount of funds the Company lends for each dollar of deposits on hand. Our average loan-to-deposit ratio for the second quarter of 2019 was 87.09%, compared to 87.08% for the first quarter of 2019 and 86.84% for the second quarter of 2018. Management has an established target range for the loan-to-deposit ratio of 87% to 89%, which could be exceeded under certain circumstances.

Cash generated from operations is another important source of funds to meet liquidity needs. The consolidated statements of cash flows present operating cash flows and summarize all significant sources and uses of funds for the six months ended June 30, 2019 and 2018.

Dividends received from the Bank have been the primary source of funds available to the Parent for the payment of dividends to our stockholders and for servicing its debt. The liquidity management process takes into account the various regulatory provisions that can limit the amount of dividends the Bank can distribute to the Parent. The Parent targets cash and other liquid assets to provide liquidity in an amount sufficient to fund approximately six quarters of anticipated common stockholder dividends, but will temporarily operate below that level if a return to the target can be achieved in the near-term.

CAPITAL RESOURCES

Stockholders’ equity totaled $3.3 billion at June 30, 2019, up $128.3 million, or 4%, from March 31, 2019 and up $389.4 million, or 13%, from June 30, 2018. The tangible common equity ratio was 8.75 % at June 30, 2019, compared to 8.36% at March 31, 2019 and 7.76% at June 30, 2018. The increase in the tangible common equity ratio from both March 31, 2019 and June 30, 2018 is primarily attributable to net tangible retained earnings and net gains on fair value adjustments of securities available for sale included in other accumulated comprehensive income, partially offset by growth in tangible assets. The increase from June 30, 2018 was negatively impacted by acquired intangible assets. Management has established an internal target for the tangible common equity ratio of at least 8.00%; however, management will allow the tangible common equity ratio to drop below 8.00% on a temporary basis if it believes that the shortfall can be replenished through normal operations within a short time frame.

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The regulatory capital ratios of the Comp any and the Bank as of June 30, 2019 remain ed well in excess of current regulatory minimum requirements. The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators. Both entities currently exceed all capital requirements of the Basel III requirements. Refer to the Supervision and Regulation section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for further discussion of our capital requirements.

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

|  | Well- |  |  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
|  | Capitalized |  |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2018 |  |  | 2018 |
Total capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Whitney Corporation |  |  | 10.00 | % |  |  | 12.43 | % |  |  | 12.24 | % |  |  | 11.99 | % |  |  | 11.98 | % |  |  | 12.12 | %
Hancock Whitney Bank |  |  | 10.00 | % |  |  | 11.81 | % |  |  | 11.73 | % |  |  | 11.17 | % |  |  | 11.25 | % |  |  | 11.57 | %
Tier 1 common equity capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Whitney Corporation |  |  | 6.50 | % |  |  | 10.94 | % |  |  | 10.74 | % |  |  | 10.48 | % |  |  | 10.36 | % |  |  | 10.48 | %
Hancock Whitney Bank |  |  | 6.50 | % |  |  | 10.97 | % |  |  | 10.88 | % |  |  | 10.32 | % |  |  | 10.30 | % |  |  | 10.60 | %
Tier 1 capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Whitney Corporation |  |  | 8.00 | % |  |  | 10.94 | % |  |  | 10.74 | % |  |  | 10.48 | % |  |  | 10.36 | % |  |  | 10.48 | %
Hancock Whitney Bank |  |  | 8.00 | % |  |  | 10.97 | % |  |  | 10.88 | % |  |  | 10.32 | % |  |  | 10.30 | % |  |  | 10.60 | %
Tier 1 leverage capital |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hancock Whitney Corporation |  |  | 5.00 | % |  |  | 9.10 | % |  |  | 8.85 | % |  |  | 8.67 | % |  |  | 8.50 | % |  |  | 8.66 | %
Hancock Whitney Bank |  |  | 5.00 | % |  |  | 9.12 | % |  |  | 8.97 | % |  |  | 8.54 | % |  |  | 8.46 | % |  |  | 8.77 | %

On May 24, 2018, our board of directors approved a stock buyback program that authorized the repurchase of up to 5%, or approximately 4.3 million shares, of outstanding common stock. The approved program allows us to repurchase shares of our common stock either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company in one or more transactions, from time to time until December 31, 2019. The Company is not obligated to purchase any shares under this program and the board of directors may terminate or amend the program at any time prior to the expiration. As of June 30, 2019, we had purchased 200,000 shares of our common stock at an average price of $41.30 per share under this program.

On April 26, 2019, our board of directors declared the regular second quarter cash dividend at $0.27 per share, the same as the prior quarter.

BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $5.7 billion at June 30, 2019, up $148.2 million, or 2.7%, from March 31, 2019 and down $388.1 million, or 6.3%, from June 30, 2018. At June 30, 2019, securities available for sale totaled $2.8 billion and securities held to maturity totaled $2.9 billion.

Our securities portfolio consists mainly of residential and commercial mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies. We invest only in high quality investment grade securities with a targeted portfolio duration generally between two and five and a half years. At June 30, 2019, the average expected maturity of the portfolio was 5.41 years with an effective duration of 4.18 years and a nominal weighted-average yield of 2.75%. Management simulations indicate that the effective duration would increase to 4.55 years with a 100 bp increase in the yield curve and increase to 4.73 years with a 200 bp increase. At March 31, 2019, the average expected maturity of the portfolio was 5.52 years with an effective duration of 4.37 years and a nominal weighted-average yield of 2.75%. The average maturity of the portfolio at June 30, 2018 was 6.09 years, with an effective duration was 4.89 years and the nominal weighted-average yield was 2.53%. The change in expected maturity, effective duration, and nominal weighted-average yield compared to prior quarter is primarily related to prepayments and maturities during the second quarter of 2019. Year-over-year metrics were impacted by the fourth quarter 2018 portfolio restructure.

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Loans

Total loans at June 30, 2019 were $20.2 billion, up $63.0 million, or less than 1%, from March 31, 2019, and up $0.8 billion, or 4.2%, from June 30, 2018. Growth from March 31, 2019 was impacted by anticipated paydowns, the sale of approximately $45 million of portfolio mortgage loans, a $55 million decrease in the energy portfolio and a $43 million decrease in the healthcare portfolio. Net loan growth continues to be diversified across products and the Bank’s footprint. Management anticipates that the full year average loan growth percentage for 2019, without consideration of the MidSouth acquisition, will be in the mid-single digits.

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

|  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2018 |  |  | 2018 |
Total loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 8,559,118 |  |  | $ | 8,656,326 |  |  | $ | 8,620,601 |  |  | $ | 8,438,884 |  |  | $ | 8,410,961 |
Commercial real estate - owner occupied |  |  | 2,519,970 |  |  |  | 2,515,428 |  |  |  | 2,457,748 |  |  |  | 2,300,271 |  |  |  | 2,233,794 |
Total commercial and industrial |  |  | 11,079,088 |  |  |  | 11,171,754 |  |  |  | 11,078,349 |  |  |  | 10,739,155 |  |  |  | 10,644,755 |
Commercial real estate - income producing |  |  | 2,895,468 |  |  |  | 2,563,394 |  |  |  | 2,341,779 |  |  |  | 2,311,699 |  |  |  | 2,342,192 |
Construction and land development |  |  | 1,144,062 |  |  |  | 1,340,067 |  |  |  | 1,548,335 |  |  |  | 1,523,419 |  |  |  | 1,515,233 |
Residential mortgages |  |  | 2,968,271 |  |  |  | 2,933,251 |  |  |  | 2,910,081 |  |  |  | 2,846,916 |  |  |  | 2,780,359 |
Consumer |  |  | 2,088,923 |  |  |  | 2,104,372 |  |  |  | 2,147,867 |  |  |  | 2,122,528 |  |  |  | 2,088,378 |
Total loans |  | $ | 20,175,812 |  |  | $ | 20,112,838 |  |  | $ | 20,026,411 |  |  | $ | 19,543,717 |  |  | $ | 19,370,917 |

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

Commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $11.1 billion, or 55% of the total loan portfolio at June 30, 2019, a decrease of $92.7 million, or 1%, from March 31, 2019. The decrease in owner occupied real estate related activities, healthcare and energy lending, were partially offset by growth in retail, professional and manufacturing lines as we continue to diversify into a more granular portfolio.

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 June 30, 2019 totaled approximately $2.1 billion, or 10% of total loans, an increase of $16.6 million from March 31, 2019. Approximately $575.2 million of our shared national credits at June 30, 2019 were with energy-related customers at June 30, 2019.

Loans to borrowers in the energy sector totaled $1.0 billion at June 30, 2019, down $55.2 million, or 5%, from March 31, 2019 and up $22.8 million, or 2%, compared to June 30, 2018. We intend to maintain our total energy concentration at approximately 5% and to continue shifting the mix within the portfolio to have support services credits comprise no more than 40% of the portfolio. At June 30, 2019, approximately $537 million, or 53%, of the portfolio was comprised of customers engaged in exploration and production, transportation, and storage activities. The remaining $470 million, or 47%, of the portfolio was comprised of customers engaged in onshore and offshore services and products to support exploration and production activities.

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

|  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
|  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2018 |  |  | 2018 |
|  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |
( $ in thousands ) |  | Balance |  |  | Total |  |  | Balance |  |  | Total |  |  | Balance |  |  | Total |  |  | Balance |  |  | Total |  |  | Balance |  |  | Total |
Commercial & industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real Estate and Rental and Leasing |  | $ | 1,303,770 |  |  |  | 12 | % |  | $ | 1,406,207 |  |  |  | 12 | % |  | $ | 1,326,146 |  |  |  | 12 | % |  | $ | 1,232,737 |  |  |  | 11 | % |  | $ | 1,195,278 |  |  |  | 11 | %
Health Care and Social Assistance |  |  | 1,040,352 |  |  |  | 9 | % |  |  | 1,083,469 |  |  |  | 10 | % |  |  | 1,120,799 |  |  |  | 10 | % |  |  | 1,135,040 |  |  |  | 11 | % |  |  | 1,152,593 |  |  |  | 11 | %
Retail Trade (a) |  |  | 1,024,031 |  |  |  | 9 | % |  |  | 970,599 |  |  |  | 9 | % |  |  | 937,971 |  |  |  | 8 | % |  |  | 934,281 |  |  |  | 9 | % |  |  | 904,117 |  |  |  | 8 | %
Manufacturing (a) |  |  | 946,700 |  |  |  | 9 | % |  |  | 922,365 |  |  |  | 8 | % |  |  | 877,950 |  |  |  | 8 | % |  |  | 852,643 |  |  |  | 8 | % |  |  | 823,263 |  |  |  | 8 | %
Mining, Quarrying, and Oil and Gas Extraction (a) |  |  | 922,055 |  |  |  | 8 | % |  |  | 957,590 |  |  |  | 8 | % |  |  | 1,016,870 |  |  |  | 9 | % |  |  | 917,389 |  |  |  | 9 | % |  |  | 932,113 |  |  |  | 9 | %
Public Administration |  |  | 778,622 |  |  |  | 7 | % |  |  | 799,237 |  |  |  | 7 | % |  |  | 814,442 |  |  |  | 7 | % |  |  | 842,199 |  |  |  | 8 | % |  |  | 866,052 |  |  |  | 8 | %
Transportation and Warehousing (a) |  |  | 745,403 |  |  |  | 7 | % |  |  | 746,837 |  |  |  | 7 | % |  |  | 717,746 |  |  |  | 7 | % |  |  | 700,698 |  |  |  | 6 | % |  |  | 702,615 |  |  |  | 7 | %
Wholesale Trade (a) |  |  | 657,215 |  |  |  | 6 | % |  |  | 657,685 |  |  |  | 6 | % |  |  | 602,052 |  |  |  | 5 | % |  |  | 559,638 |  |  |  | 5 | % |  |  | 523,839 |  |  |  | 5 | %
Construction |  |  | 619,204 |  |  |  | 6 | % |  |  | 645,107 |  |  |  | 6 | % |  |  | 643,932 |  |  |  | 6 | % |  |  | 582,761 |  |  |  | 5 | % |  |  | 632,592 |  |  |  | 6 | %
Finance and Insurance |  |  | 610,900 |  |  |  | 5 | % |  |  | 595,373 |  |  |  | 5 | % |  |  | 605,663 |  |  |  | 6 | % |  |  | 524,836 |  |  |  | 5 | % |  |  | 460,803 |  |  |  | 4 | %
Professional, Scientific, and Technical Services (a) |  |  | 459,794 |  |  |  | 4 | % |  |  | 421,999 |  |  |  | 4 | % |  |  | 462,984 |  |  |  | 4 | % |  |  | 439,153 |  |  |  | 4 | % |  |  | 440,727 |  |  |  | 4 | %
Other Services (except Public Administration) |  |  | 452,958 |  |  |  | 4 | % |  |  | 450,153 |  |  |  | 4 | % |  |  | 436,390 |  |  |  | 4 | % |  |  | 391,040 |  |  |  | 4 | % |  |  | 382,737 |  |  |  | 4 | %
Accommodation and Food Services |  |  | 415,814 |  |  |  | 4 | % |  |  | 413,732 |  |  |  | 4 | % |  |  | 385,958 |  |  |  | 4 | % |  |  | 416,734 |  |  |  | 4 | % |  |  | 418,789 |  |  |  | 4 | %
Educational Services |  |  | 351,697 |  |  |  | 3 | % |  |  | 353,803 |  |  |  | 3 | % |  |  | 359,997 |  |  |  | 3 | % |  |  | 430,238 |  |  |  | 4 | % |  |  | 437,484 |  |  |  | 4 | %
Other (a) |  |  | 750,573 |  |  |  | 7 | % |  |  | 747,598 |  |  |  | 7 | % |  |  | 769,449 |  |  |  | 7 | % |  |  | 779,768 |  |  |  | 7 | % |  |  | 771,753 |  |  |  | 7 | %
Total commercial & industrial loans |  | $ | 11,079,088 |  |  |  | 100 | % |  | $ | 11,171,754 |  |  |  | 100 | % |  | $ | 11,078,349 |  |  |  | 100 | % |  | $ | 10,739,155 |  |  |  | 100 | % |  | $ | 10,644,755 |  |  |  | 100 | %

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

Commercial real estate – income producing loans totaled approximately $2.9 billion at June 30, 2019, an increase of $332.1 million, or 13%, from March 31, 2019. The increase reflects the transfer of loans from construction to permanent financing, as well as new production that included increases for multifamily properties, retail properties and industrial properties. The following table details for the preceding five quarters the end-of-period commercial real estate – income producing loan balances by property type.

|  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
|  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2018 |  |  | 2018 |
|  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |  |  |  |  |  |  | Pct of |
( $ in thousands ) |  | Balance |  |  | Total |  |  | Balance |  |  | Total |  |  | Balance |  |  | Total |  |  | Balance |  |  | Total |  |  | Balance |  |  | Total |
Commercial real estate - income producing loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 607,622 |  |  |  | 21 | % |  | $ | 542,904 |  |  |  | 21 | % |  | $ | 507,129 |  |  |  | 22 | % |  | $ | 499,395 |  |  |  | 22 | % |  | $ | 502,809 |  |  |  | 22 | %
Multifamily |  |  | 519,808 |  |  |  | 18 | % |  |  | 369,041 |  |  |  | 14 | % |  |  | 332,145 |  |  |  | 14 | % |  |  | 333,144 |  |  |  | 15 | % |  |  | 347,732 |  |  |  | 15 | %
Office |  |  | 465,498 |  |  |  | 16 | % |  |  | 436,819 |  |  |  | 17 | % |  |  | 444,973 |  |  |  | 19 | % |  |  | 421,965 |  |  |  | 18 | % |  |  | 430,319 |  |  |  | 18 | %
Industrial |  |  | 406,926 |  |  |  | 14 | % |  |  | 353,804 |  |  |  | 14 | % |  |  | 311,933 |  |  |  | 13 | % |  |  | 285,292 |  |  |  | 12 | % |  |  | 279,041 |  |  |  | 12 | %
Hotel/Motel |  |  | 379,385 |  |  |  | 13 | % |  |  | 377,674 |  |  |  | 15 | % |  |  | 374,430 |  |  |  | 16 | % |  |  | 346,735 |  |  |  | 15 | % |  |  | 332,411 |  |  |  | 14 | %
Other |  |  | 516,229 |  |  |  | 18 | % |  |  | 483,152 |  |  |  | 19 | % |  |  | 371,169 |  |  |  | 16 | % |  |  | 425,168 |  |  |  | 18 | % |  |  | 449,880 |  |  |  | 19 | %
Total commercial real estate - income producing loans |  | $ | 2,895,468 |  |  |  | 100 | % |  | $ | 2,563,394 |  |  |  | 100 | % |  | $ | 2,341,779 |  |  |  | 100 | % |  | $ | 2,311,699 |  |  |  | 100 | % |  | $ | 2,342,192 |  |  |  | 100 | %

Construction and land development loans, totaling approximately $1.1 billion at June 30, 2019, decreased $196.0 million, or 15%, from March 31, 2019. The decrease was primarily due to the reclassification of loans from construction and land development loans to commercial real estate loans as noted above.

Residential mortgages increased $35.0 million, which is net of a $45 million portfolio sale, and consumer loans decreased $15.4 million during the second quarter of 2019.

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Allowance for Loan Losses and Asset Quality

The Company's total allowance for loan losses was $195.6 million at June 30, 2019 virtually unchanged from March 30, 2019 and down $18.9 million compared to June 30, 2018. The ratio of the allowance for loan losses to period-end loans was flat compared to March 31, 2019 and December 31, 2018 at 0.97%. The allowance for loan losses at June 30, 2019 compared to March 31, 2019 reflects a net build in the commercial nonenergy portfolio of $1.7 million, partially offset by a net release of $0.5 million in the mortgage portfolio and $0.3 million in the consumer portfolio. The relatively flat allowance reflects the favorable impact of improvement in criticized levels and other credit metrics across most of the loan portfolios. Energy performance continues to be stable with a modest decline in criticized levels compared to prior quarter. The energy allowance totaled $31.5 million, relatively unchanged compared to prior quarter, with coverage to total loans at 3.13%, up from 2.96% as the portfolio balance declined.

The Company’s balance of criticized commercial loans totaled $572.9 million at June 30, 2019, down $11.4 million, or 2%, compared to March 31, 2019, with $4.9 million of the decrease attributable to the commercial nonenergy portfolio and $6.5 million attributable to the energy portfolio. Compared to June 30, 2018, criticized commercial loans were down $324.5 million, or 36%, with $174.0 million attributable to the commercial nonenergy portfolio and $150.6 million of the decrease attributable to the energy portfolio. Criticized loans are defined as those having potential weaknesses that deserve management’s close attention (risk-rated as special mention, substandard and doubtful), including both accruing and nonaccruing loans. Our commercial nonenergy criticized portfolio, totaling $314.9 million at June 30, 2019, is comprised of loans that are diversified as to both industry and geography. Commercial nonenergy criticized loans comprised 2.08% of that portfolio at June 30, 2019, compared to 2.12% March 31, 2019 and 3.37% at June 30, 2018. At June 30, 2019, criticized loans in the energy portfolio were $257.9 million, or approximately 26% of that portfolio, up slightly compared to March 31, 2019, but down significantly from 41% at June 30, 2018.

Net charge-offs were $7.2 million, or 0.14%, of average total loans on an annualized basis in the second quarter of 2019, down from $17.9 million, or 0.36%, of average total loans in the first quarter of 2019, which includes $10.1 million related to the alleged fraud associated with the DC Solar equipment finance credit . Commercial net charge-offs totaled $4.4 million in the second quarter of 2019 down compared to $14.4 million in the first quarter of 2019, but relatively flat when excluding the DC Solar charge-off. There were no energy net charge-offs during the first two quarters of 2019. The second quarter of 2018 included $1.9 million in energy net recoveries. We have recorded approximately $95 million in energy charge-offs during the latest down cycle that began in late 2014. Residential mortgage and consumer net charge-offs were each down $0.3 million compared to the prior quarter.

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |
(in thousands) |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Allowance for loan losses at beginning of period |  | $ | 194,688 |  |  | $ | 194,514 |  |  | $ | 210,713 |  |  | $ | 194,514 |  |  | $ | 217,308 |
Loans charged-off: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial non real estate |  |  | 5,309 |  |  |  | 16,344 |  |  |  | 2,510 |  |  |  | 21,653 |  |  |  | 11,845 |
Commercial real estate - owner-occupied |  |  | 71 |  |  |  | — |  |  |  | 5,953 |  |  |  | 71 |  |  |  | 6,804 |
Total commercial & industrial |  |  | 5,380 |  |  |  | 16,344 |  |  |  | 8,463 |  |  |  | 21,724 |  |  |  | 18,649 |
Commercial real estate - income producing |  |  | — |  |  |  | 10 |  |  |  | 1,604 |  |  |  | 10 |  |  |  | 1,604 |
Construction and land development |  |  | — |  |  |  | — |  |  |  | 210 |  |  |  | — |  |  |  | 220 |
Total commercial |  |  | 5,380 |  |  |  | 16,354 |  |  |  | 10,277 |  |  |  | 21,734 |  |  |  | 20,473 |
Residential mortgages |  |  | 33 |  |  |  | 406 |  |  |  | 306 |  |  |  | 439 |  |  |  | 498 |
Consumer |  |  | 3,936 |  |  |  | 4,231 |  |  |  | 4,916 |  |  |  | 8,167 |  |  |  | 12,964 |
Total charge-offs |  |  | 9,349 |  |  |  | 20,991 |  |  |  | 15,499 |  |  |  | 30,340 |  |  |  | 33,935 |
Commercial non real estate |  |  | 804 |  |  |  | 1,926 |  |  |  | 8,330 |  |  |  | 2,730 |  |  |  | 12,476 |
Commercial real estate - owner-occupied |  |  | 204 |  |  |  | 17 |  |  |  | 187 |  |  |  | 221 |  |  |  | 275 |
Total commercial & industrial |  |  | 1,008 |  |  |  | 1,943 |  |  |  | 8,517 |  |  |  | 2,951 |  |  |  | 12,751 |
Commercial real estate - income producing |  |  | — |  |  |  | 2 |  |  |  | 2 |  |  |  | 2 |  |  |  | 65 |
Construction and land development |  |  | 86 |  |  |  | 11 |  |  |  | 9 |  |  |  | 97 |  |  |  | 38 |
Total commercial |  |  | 1,094 |  |  |  | 1,956 |  |  |  | 8,528 |  |  |  | 3,050 |  |  |  | 12,854 |
Residential mortgages |  |  | 104 |  |  |  | 162 |  |  |  | 596 |  |  |  | 266 |  |  |  | 712 |
Consumer |  |  | 1,000 |  |  |  | 1,004 |  |  |  | 1,301 |  |  |  | 2,004 |  |  |  | 3,095 |
Total recoveries |  |  | 2,198 |  |  |  | 3,122 |  |  |  | 10,425 |  |  |  | 5,320 |  |  |  | 16,661 |
Total net charge-offs |  |  | 7,151 |  |  |  | 17,869 |  |  |  | 5,074 |  |  |  | 25,020 |  |  |  | 17,274 |
Provision for loan losses |  |  | 8,088 |  |  |  | 18,043 |  |  |  | 8,891 |  |  |  | 26,131 |  |  |  | 21,144 |
Decrease in allowance as a result of sale of subsidiary |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6,648 | )
Allowance for loan losses at end of period |  | $ | 195,625 |  |  | $ | 194,688 |  |  | $ | 214,530 |  |  | $ | 195,625 |  |  | $ | 214,530 |
Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross charge-offs to average loans |  |  | 0.19 | % |  |  | 0.42 | % |  |  | 0.32 | % |  |  | 0.30 | % |  |  | 0.36 | %
Recoveries to average loans |  |  | 0.04 | % |  |  | 0.06 | % |  |  | 0.22 | % |  |  | 0.05 | % |  |  | 0.18 | %
Net charge-offs to average loans |  |  | 0.14 | % |  |  | 0.36 | % |  |  | 0.11 | % |  |  | 0.25 | % |  |  | 0.18 | %
Allowance for loan losses to period-end loans |  |  | 0.97 | % |  |  | 0.97 | % |  |  | 1.11 | % |  |  | 0.97 | % |  |  | 1.11 | %

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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.

|  | June 30, |  |  | December 31, |
(in thousands) |  | 2019 |  |  | 2018 |
Loans accounted for on a nonaccrual basis: (a) |  |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 40,274 |  |  | $ | 26,617 |
Commercial non-real estate - restructured |  |  | 96,852 |  |  |  | 84,036 |
Total commercial non-real estate |  |  | 137,126 |  |  |  | 110,653 |
Commercial real estate - owner occupied |  |  | 12,860 |  |  |  | 16,682 |
Commercial real estate - owner-occupied - restructured |  |  | 360 |  |  |  | 213 |
Total commercial real estate - owner-occupied |  |  | 13,220 |  |  |  | 16,895 |
Commercial real estate - income producing |  |  | 3,544 |  |  |  | 4,991 |
Commercial real estate - income producing - restructured |  |  | — |  |  |  | — |
Total commercial real estate - income producing |  |  | 3,544 |  |  |  | 4,991 |
Construction and land development |  |  | 1,589 |  |  |  | 2,134 |
Construction and land development - restructured |  |  | 19 |  |  |  | 12 |
Total construction and land development |  |  | 1,608 |  |  |  | 2,146 |
Residential mortgage |  |  | 35,698 |  |  |  | 34,594 |
Residential mortgage - restructured |  |  | 1,602 |  |  |  | 1,272 |
Total residential mortgage |  |  | 37,300 |  |  |  | 35,866 |
Consumer |  |  | 16,818 |  |  |  | 16,744 |
Consumer - restructured |  |  | 215 |  |  |  | — |
Total consumer |  |  | 17,033 |  |  |  | 16,744 |
Total nonaccrual loans |  | $ | 209,831 |  |  | $ | 187,295 |
Restructured loans - still accruing: |  |  |  |  |  |  |  |
Commercial non-real estate |  | $ | 93,484 |  |  | $ | 130,075 |
Commercial real estate - owner occupied |  |  | 5,915 |  |  |  | 7,286 |
Commercial real estate - income producing |  |  | 385 |  |  |  | 398 |
Construction and land development |  |  | — |  |  |  | 9 |
Residential mortgage |  |  | 439 |  |  |  | 546 |
Consumer |  |  | 1,027 |  |  |  | 728 |
Total restructured loans - still accruing |  |  | 101,250 |  |  |  | 139,042 |
Total nonperforming loans |  |  | 311,081 |  |  |  | 326,337 |
ORE and foreclosed assets |  |  | 27,520 |  |  |  | 26,270 |
Total nonperforming assets (b) |  | $ | 338,601 |  |  | $ | 352,607 |
Loans 90 days past due still accruing to loans (c) |  | $ | 6,493 |  |  | $ | 5,589 |
Total restructured loans |  | $ | 200,298 |  |  | $ | 224,575 |
Ratios: |  |  |  |  |  |  |  |
Nonperforming assets to loans plus ORE and foreclosed assets |  |  | 1.68 | % |  |  | 1.76 | %
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due |  |  | 61.60 | % |  |  | 58.60 | %
Loans 90 days past due still accruing to loans |  |  | 0.03 | % |  |  | 0.03 | %

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

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

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

Nonperforming assets totaled $338.6 million at June 30, 2019, down $11.0 million from March 31, 2019, $14.0 million from December 31, 2018 and $77.9 million from June 30, 2018. Nonperforming loans decreased approximately $11.3 million compared to March 31, 2019, due largely to a reduction in restructured accruing loans as a result of the return to a market structure for one of our energy credits as well as other net activity including both paydowns and new downgrades. Our nonperforming loans included $101.3 million of accruing restructured loans, most of which are energy credits that endured challenges during the downturn in the energy cycle. Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 1.68% at June 30, 2019, down 6 bps from March 31, 2019, 8 bps from December 31, 2018 and 47 bps from June 30, 2018.

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Short-Term Investments

Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, were $151.1 million at June 30, 2019. This represents a decrease of $12.7 million from March 30, 2019 and an increase of $46.9 million from June 30, 2018. These asset levels vary on a daily basis depending upon movement in customer loan and deposit accounts. Average short-term investments of $228.5 million for the second quarter of 2019 were up $12.3 million compared to the first quarter of 2019, and $85.4 million compared to the second quarter of 2018. Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors.

Deposits

Total deposits were $23.2 billion at June 30, 2019, down $144.3 million, or 1%, from March 31, 2019, and up $1.0 billion, or 5%, from June 30, 2018. Average deposits for the second quarter of 2019 were $23.1 billion, up $23.4 million, or less than 1%, from the first quarter of 2019 and up $1.0 billion, or 5%, from the second quarter of 2018.

Noninterest-bearing demand deposits were $8.1 billion at June 30, 2019, down $44.0 million, or 1%, from March 31, 2019, and down $51.2 million, 1%, from June 30, 2018. Noninterest-bearing demand deposits comprised 35% of total deposits at June 30, 2019 and March 31, 2019 and 37% at June 30, 2018.

Interest-bearing transaction and savings accounts of $8.0 billion at June 30, 2019 decreased $189.4 million, or 2%, from March 31, 2019 and increased $323.3 million, or 4%, from June 30, 2018, with the year-over-year increase mainly attributable to customer deposits assumed in the trust and asset management acquisition.

Interest-bearing public fund deposits totaled $3.2 billion at June 30, 2019, down $69.8 million, or 2%, from March 31, 2019, and up $305.0 million, or 11%, from June 30, 2018. Time deposits other than public funds totaled $3.9 billion at June 30, 2019, up $159.0 million from March 31, 2019, driven primarily by promotional certificate of deposit offers across our markets and a $15 million increase in brokered certificates of deposit. Time deposits other than public funds were up $423.7 million, or 12.0%, from June 30, 2018, largely due to an increase in retail certificates of deposit. The growth in time deposits was impacted by $715 million of maturities during the second quarter of 2019 compared to $207 million in first quarter of 2019 and $251 million during the second quarter of 2018.

Short-Term Borrowings

At June 30, 2019, short-term borrowings totaled $1.6 billion, up $252.9 million, or 18%, from March 31, 2019, with increases in securities sold under repurchase agreements of $152.8 million and FHLB borrowings increased $100.0 million. Short-term borrowings decreased $672.6 million from June 30, 2018. The decrease compared to second quarter of 2018 was due in part to a portfolio restructure late in the fourth quarter where proceeds from the sale of loans and securities were used to pay down a portion of FHLB borrowings.

Average short-term borrowings of $1.6 billion in the second quarter of 2019 were down $67.1 million, or 4%, compared to the first quarter of 2019, and down $371.6 million, or 19%, compared to the second quarter of 2018.

Customer repurchase agreements and FHLB borrowings are the major sources of short-term borrowings. Customer repurchase agreements are offered mainly to commercial customers to assist them with their cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, amounts available will vary. FHLB borrowings are funds from the Federal Home Loan Bank that are collateralized by single family and commercial real estate loans included in the Bank’s loan portfolio, subject to specific criteria.

Operating Leases

Effective January 1, 2019, the Company adopted the amended provisions of Financial Accounting Standards Codification Topic 842, “Leases,” using the modified retrospective approach, impacting the reporting and disclosures for operating leases. The core principle of Topic 842 is that a lessee should recognize in the statement of financial position a liability representing the present value of future lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset over the lease term, as well as the disclosure of key information about operating leasing arrangements. Upon adoption, the Company recorded a gross-up of assets and liabilities in its consolidated balance sheet, with approximately $116 million for right-of-use assets and $131 million of lease payment obligations offset by the elimination of $15 million of existing lease incentive and other deferred rent liabilities. Accounting for leases in accordance with Topic 842 has not had a material impact upon our consolidated results of operations, and is not expected to in future periods. Refer to Note 5 – Operating Leases for further information related to the operating lease accounting policy, practical expedient elections for adoption and operating leasing information at adoption.

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OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

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

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

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

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

The following table shows the commitments to extend credit and letters of credit at June 30, 2019 according to expiration date.

|  |  |  |  |  | Expiration Date |
|  |  |  |  |  | Less than |  |  | 1-3 |  |  | 3-5 |  |  | More than |
(in thousands) |  | Total |  |  | 1 year |  |  | years |  |  | years |  |  | 5 years |
Commitments to extend credit |  | $ | 6,930,220 |  |  | $ | 2,976,769 |  |  | $ | 1,420,688 |  |  | $ | 1,370,900 |  |  | $ | 1,161,863 |
Letters of credit |  |  | 359,487 |  |  |  | 278,934 |  |  |  | 30,716 |  |  |  | 49,837 |  |  |  | — |
Total |  | $ | 7,289,707 |  |  | $ | 3,255,703 |  |  | $ | 1,451,404 |  |  | $ | 1,420,737 |  |  | $ | 1,161,863 |

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

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

NEW ACCOUNTING PRONOUNCEMENTS

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

|  | Estimated Increase |
|  | (Decrease) in NII |
Change in Interest Rates |  | Year 1 |  |  | Year 2 |
(basis points) |  |  |  |  |  |  |  |
-100 |  |  | (4.26 | )% |  |  | (6.21 | )%
+100 |  |  | 3.10 | % |  |  | 4.30 | %
+200 |  |  | 5.59 | % |  |  | 7.57 | %
+300 |  |  | 7.80 | % |  |  | 10.35 | %

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

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

The foregoing disclosures related to our market risk should be read in conjunction with our audited consolidated financial statements, related notes and management’s discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 4. Controls and Procedures

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

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Our management, including the Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reportin g that occurred during the three month period ended June 30, 2019, that has material ly affected, or is reasonably li kely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The Company disclosed risk factors in its Annual Report on Form 10-K for the year ended December 31, 2018. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

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

None.

Item 6. Exhibits

(a) Exhibits:

Exhibit Number |  | Description |  | Filed Herewith |  | Form |  | Exhibit |  | Filing Date
2.1 |  | Agreement and Plan of Merger, dated as of April 30, 2019, by and between Hancock Whitney Corporation and MidSouth Bancorp, Inc. |  |  |  | 8-K |  | 2.1 |  | 5/2/2019
3.1 |  | Composite Articles of the Company |  |  |  | 8-K |  | 3.1 |  | 5/24/2018
3.2 |  | Amended and Restated Bylaws |  |  |  | 8-K |  | 3.2 |  | 5/24/2018
31.1 |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | X |  |  |  |  |  |
31.2 |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | X |  |  |  |  |  |
32.1 |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | X |  |  |  |  |  |
32.2 |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | X |  |  |  |  |  |
101 |  | Inline XBRL Interactive Data |  | X |  |  |  |  |  |
104 |  | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL |  | X |  |  |  |  |  |

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SIGNATURES

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

Hancock Whitney Corporation |
By: |  | /s/ John M. Hairston
|  | John M. Hairston
|  | President & Chief Executive Officer
|  | (Principal Executive Officer)
|  | /s/ Michael M. Achary
|  | Michael M. Achary
|  | Senior Executive Vice President & Chief Financial Officer (Principal Financial Officer)
|  | /s/ Stephen E. Barker
|  | Stephen E. Barker
|  | Executive Vice President & Chief Accounting Officer (Principal Accounting Officer)
|  | August 6, 2019

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