UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________

FORM 10-Q

___________________________________________________________

(Mark one)

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

For the quarterly period ended March 31, 2016

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: 001-36827

HANCOCK HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Mississippi	64-0693170
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Hancock Plaza, 2510 14thStreet, 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ☒  Yes    ☐  No

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

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

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

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

77,514,296 common shares were outstanding as of May 1, 2016.  

Hancock Holding Company

Index

Part I. Financial Information		Page Number
ITEM 1.	Financial Statements
	Consolidated Balance Sheets – March 31, 2016 (unaudited) and December 31, 2015	1
	Consolidated Statements of Income (unaudited) - Three months ended March 31, 2016 and 2015	2
	Consolidated Statements of Comprehensive Income (unaudited) - Three months ended March 31, 2016 and 2015	3
	Consolidated Statements of Changes in Stockholders’ Equity - (unaudited) – Three months ended March 31, 2016 and 2015	4
	Consolidated Statements of Cash Flows (unaudited) - Three months ended March 31, 2016 and 2015	5
	Notes to Consolidated Financial Statements (unaudited) –March 31, 2016	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	41
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	63
ITEM 4.	Controls and Procedures	64
Part II.  Other Information
ITEM 1.	Legal Proceedings	64
ITEM 1A.	Risk Factors	64
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
ITEM 3.	Default on Senior Securities	N/A
ITEM 4.	Mine Safety Disclosures	N/A
ITEM 5.	Other Information	N/A
ITEM 6.	Exhibits	65
Signatures

Part I. Financial Information

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets

	March 31,		December 31,
(in thousands, except share data)	2016		2015
ASSETS		unaudited
Cash and due from banks	$	291,099	$	303,874
Interest-bearing bank deposits		151,193		564,671
Federal funds sold		358		884
Securities available for sale, at fair value (amortized cost of $2,116,271 and $2,086,745)		2,149,466		2,093,404
Securities held to maturity (fair value of $2,566,799 and $2,375,851)		2,518,371		2,370,388
Loans held for sale		24,001		20,434
Loans		15,978,124		15,703,314
Less: allowance for loan losses		(217,794)		(181,179)
Loans, net		15,760,330		15,522,135
Property and equipment, net of accumulated depreciation of $216,418 and $209,763		371,319		377,015
Prepaid expenses		20,152		17,560
Other real estate, net		23,191		26,256
Accrued interest receivable		57,448		54,068
Goodwill		621,193		621,193
Other intangible assets, net		102,414		107,538
Life insurance contracts		435,494		434,550
FDIC loss share receivable		25,828		29,868
Deferred tax asset, net		72,131		75,830
Other assets		185,382		213,937
Total assets	$	22,809,370	$	22,833,605
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	7,108,598	$	7,276,127
Interest-bearing		11,547,552		11,072,785
Total deposits		18,656,150		18,348,912
Short-term borrowings		1,100,787		1,423,644
Long-term debt		471,245		490,145
Accrued interest payable		8,455		6,609
Other liabilities		151,693		151,152
Total liabilities		20,388,330		20,420,462
Stockholders' equity
Common Stock - $3.33 par value per share; 350,000,000 shares authorized, 77,507,960 and 77,496,429 outstanding		258,102		258,063
Capital surplus		1,688,482		1,684,101
Treasury shares at cost - 9,307,551 and 9,319,082 shares		(227,130)		(226,370)
Retained earnings		762,652		777,944
Accumulated other comprehensive loss, net		(61,066)		(80,595)
Total stockholders' equity		2,421,040		2,413,143
Total liabilities and stockholders' equity	$	22,809,370	$	22,833,605

See notes to unaudited consolidated financial statements.

1

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended
	March 31,
(in thousands, except per share data)	2016		2015
Interest income:
Loans, including fees	$	154,113	$	146,967
Loans held for sale		159		96
Securities-taxable		23,957		20,790
Securities-tax exempt		1,802		880
Short-term investments		610		354
Total interest income		180,641		169,087
Interest expense:
Deposits		11,733		7,126
Short-term borrowings		993		172
Long-term debt		5,079		3,631
Total interest expense		17,805		10,929
Net interest income		162,836		158,158
Provision for loan losses		60,036		6,154
Net interest income after provision for loan losses		102,800		152,004
Noninterest income:
Service charges on deposit accounts		18,383		17,315
Trust fees		11,224		11,200
Bank card and ATM fees		11,348		11,183
Investment and annuity fees		4,933		5,050
Secondary mortgage market operations		2,912		2,664
Insurance commissions and fees		1,307		1,754
Amortization of FDIC loss share receivable		(1,613)		(1,197)
Other income		9,692		8,577
Total noninterest income		58,186		56,546
Noninterest expense:
Compensation expense		73,001		65,017
Employee benefits		15,714		15,634
Personnel expense		88,715		80,651
Net occupancy expense		10,356		11,177
Equipment expense		3,774		3,935
Data processing expense		14,207		13,556
Professional services expense		7,621		15,370
Amortization of intangibles		5,124		6,318
Telecommunications and postage		3,361		3,651
Deposit insurance and regulatory fees		5,397		3,595
Other real estate expense, net		768		456
Other expense		16,709		14,806
Total noninterest expense		156,032		153,515
Income before income taxes		4,954		55,035
Income taxes		1,115		14,876
Net income	$	3,839	$	40,159
Earnings per common share-basic	$	0.05	$	0.49
Earnings per common share-diluted	$	0.05	$	0.49
Dividends paid per share	$	0.24	$	0.24
Weighted average shares outstanding-basic		77,501		79,496
Weighted average shares outstanding-diluted		77,672		79,661

See notes to unaudited consolidated financial statements.

2

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
	March 31,
(in thousands)	2016		2015
Net income	$	3,839	$	40,159
Other comprehensive income:
Net change in unrealized gain		28,972		5,413
Reclassification adjustment for net losses realized and included in earnings		1,091		605
Amortization of unrealized net gain on securities transferred to held to maturity		798		647
Other comprehensive income before income taxes		30,861		6,665
Income tax		11,332		2,360
Other comprehensive income net of income taxes		19,529		4,305
Comprehensive income	$	23,368	$	44,464

See notes to unaudited consolidated financial statements.

3

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

								Accumulated
								Other
								Comprehensive
	Common Stock			Capital		Retained		Income (Loss),		Treasury
(in thousands, except share data)	Shares	Amount		Surplus		Earnings		net		Stock		Total
Balance, December 31, 2014	80,426,485	$	267,820	$	1,689,291	$	723,496	$	(50,074)	$	(158,131)	$	2,472,402
Net income	—		—		—		40,159		—		—		40,159
Other comprehensive income	—		—		—		—		4,305		—		4,305
Comprehensive income	—		—		—		40,159		4,305		—		44,464
Cash dividends declared ($0.24 per common share)	—		—		—		(19,524)		—		—		(19,524)
Common stock activity, long-term  incentive plan	23,242		78		12,086		—		—		(9,138)		3,026
Purchase of common stock under stock buyback program	(2,563,607)		(8,537)		—		—		—		(66,733)		(75,270)
Balance, March 31, 2015	77,886,120	$	259,361	$	1,701,377	$	744,131	$	(45,769)	$	(234,002)	$	2,425,098
Balance, December 31, 2015	77,496,429	$	258,063	$	1,684,101	$	777,944	$	(80,595)	$	(226,370)	$	2,413,143
Net income	—		—		—		3,839		—		—		3,839
Other comprehensive income	—		—		—		—		19,529		—		19,529
Comprehensive income	—		—		—		3,839		19,529		—		23,368
Cash dividends declared ($0.24 per common share)	—		—		—		(19,131)		—		—		(19,131)
Common stock activity, long-term incentive plan	11,531		39		4,381		—		—		(760)		3,660
Balance, March 31, 2016	77,507,960	$	258,102	$	1,688,482	$	762,652	$	(61,066)	$	(227,130)	$	2,421,040

See notes to unaudited consolidated financial statements.

4

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 31,
(in thousands)	2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,839	$	40,159
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,199		7,218
Provision for loan losses		60,036		6,154
Loss (gain) on other real estate owned		416		(248)
Deferred tax (benefit) expense		(8,041)		9,252
Increase in cash surrender value of life insurance contracts		(1,208)		(2,596)
Gain on disposal of other assets		(2,111)		(340)
Net (increase) decrease in loans held for sale		(3,308)		356
Net amortization of securities premium/discount		5,799		4,223
Amortization of intangible assets		5,124		6,318
Amortization of FDIC indemnification asset		1,613		1,197
Stock-based compensation expense		4,050		3,071
Decrease in interest payable and other liabilities		(8,565)		(8,577)
Net payments (to) from FDIC for loss share claims		(302)		7,580
Decrease (increase) in FDIC loss share receivable		557		(1,188)
Decrease (increase) in other assets		27,488		(6,826)
Other, net		143		(447)
Net cash provided by operating activities		92,729		65,306
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities		47,774		9,221
Proceeds from maturities of securities available for sale		86,966		468,358
Purchases of securities available for sale		(167,419)		(638,861)
Proceeds from maturities of securities held to maturity		86,632		88,381
Purchases of securities held to maturity		(236,117)		(207,849)
Net decrease in interest-bearing bank deposits		413,478		286,551
Net decrease in federal funds sold		526		600
Proceeds from sales of loans		61,878		—
Net increase in loans		(351,202)		(36,137)
Purchases of property and equipment		(1,550)		(8,609)
Proceeds from sales of other real estate		4,316		21,969
Other, net		3,567		(4,582)
Net cash used in investing activities		(51,151)		(20,958)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		307,254		287,654
Net decrease in short-term borrowings		(322,857)		(396,323)
Repayments of long-term debt		(19,551)		(8,800)
Net proceeds from issuance of long-term debt		66		145,196
Dividends paid		(19,131)		(19,524)
Purchase of common stock under stock buyback program		—		(75,270)
Other, net		(134)		—
Net cash provided by financing activities		(54,353)		(67,067)
NET DECREASE IN CASH AND DUE FROM BANKS		(12,775)		(22,719)
CASH AND DUE FROM BANKS, BEGINNING		303,874		356,455
CASH AND DUE FROM BANKS, ENDING	$	291,099	$	333,736
SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans	$	1,662	$	4,161

See notes to unaudited consolidated financial statements.

5

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1.  Basis of Presentation

The consolidated financial statements include the accounts of Hancock Holding Company and all other entities in which it has a controlling interest (the “Company”). The financial statements include all adjustments that are, in the opinion of management, necessary to present fairly the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented.  Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.  Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

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

Use of Estimates

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

Critical Accounting Policies and Estimates

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

2.  Securities

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

Securities Available for Sale
(in thousands)	March 31, 2016								December 31, 2015
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
US Treasury and government agency securities	$	125	$	—	$	—	$	125	$	135	$	—	$	1	$	134
Municipal obligations		87,190		792		43		87,939		39,410		235		38		39,607
Mortgage-backed securities		1,735,836		30,862		724		1,765,974		1,750,168		19,387		11,182		1,758,373
Collateralized mortgage obligations		287,171		2,414		419		289,166		291,085		140		2,192		289,033
Corporate debt securities		3,500		—		—		3,500		3,500		—		—		3,500
Equity securities		2,449		340		27		2,762		2,447		358		48		2,757
	$	2,116,271	$	34,408	$	1,213	$	2,149,466	$	2,086,745	$	20,120	$	13,461	$	2,093,404

6

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Securities Held to Maturity
(in thousands)	March 31, 2016								December 31, 2015
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
US Treasury and government agency securities	$	50,000	$	672	$	—	$	50,672	$	50,000	$	—	$	410	$	49,590
Municipal obligations		417,911		6,270		430		423,751		185,890		3,475		1,166		188,199
Mortgage-backed securities		983,146		34,214		—		1,017,360		1,014,135		15,585		1,589		1,028,131
Collateralized mortgage obligations		1,067,314		10,630		2,928		1,075,016		1,120,363		2,244		12,676		1,109,931
	$	2,518,371	$	51,786	$	3,358	$	2,566,799	$	2,370,388	$	21,304	$	15,841	$	2,375,851

The following table presents the amortized cost and fair value of debt securities at March 31, 2016 by contractual maturity.  Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.

(in thousands)	Amortized		Fair
Debt Securities Available for Sale	Cost		Value
Due in one year or less	$	6,851	$	6,881
Due after one year through five years		78,862		79,865
Due after five years through ten years		366,738		377,314
Due after ten years		1,661,371		1,682,644
Total available for sale debt securities	$	2,113,822	$	2,146,704
	Amortized		Fair
Debt Securities Held to Maturity	Cost		Value
Due in one year or less	$	15,296	$	15,408
Due after one year through five years		415,949		417,841
Due after five years through ten years		356,084		358,834
Due after ten years		1,731,042		1,774,716
Total held to maturity securities	$	2,518,371	$	2,566,799

The Company held no securities classified as trading at March 31, 2016 or December 31, 2015. 

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

Available for Sale
March 31, 2016	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Losses		Value		Losses		Value		Losses
US Treasury and government agency securities	$	—		—	$	76	$	—	$	76	$	—
Municipal obligations		25,999		43		—		—		25,999		43
Mortgage-backed securities		160,058		170		69,703		554		229,761		724
Collateralized mortgage obligations		—		—		32,215		419		32,215		419
Equity securities		—		—		1,513		27		1,513		27
	$	186,057	$	213	$	103,507	$	1,000	$	289,564	$	1,213

7

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

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

Held to maturity
March 31, 2016	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Losses		Value		Losses		Value		Losses
Municipal obligations	$	47,173	$	118	$	10,792	$	312	$	57,965	$	430
Collateralized mortgage obligations		8,871		15		314,160		2,913		323,031		2,928
	$	56,044	$	133	$	324,952	$	3,225	$	380,996	$	3,358

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

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

Securities with carrying values totaling $3.1 billion at March 31, 2016 and $3.5 billion at December 31, 2015 were pledged as collateral primarily to secure public deposits or securities sold under agreements to repurchase.

8

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3.  Loans and Allowance for Loan Losses

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

	March 31,		December 31,
(in thousands)	2016		2015
Originated loans:
Commercial non-real estate	$	7,088,146	$	6,930,453
Construction and land development		1,086,382		1,139,743
Commercial real estate		3,504,803		3,220,509
Residential mortgages		1,839,889		1,887,256
Consumer		2,048,068		2,080,626
Total originated loans	$	15,567,288	$	15,258,587
Acquired loans:
Commercial non-real estate	$	51,949	$	59,843
Construction and land development		2,250		5,080
Commercial real estate		156,285		176,460
Residential mortgages		1,116		27
Consumer		20		20
Total acquired loans	$	211,620	$	241,430
FDIC acquired loans:
Commercial non-real estate	$	5,311	$	5,528
Construction and land development		6,782		7,127
Commercial real estate		15,004		15,582
Residential mortgages		159,962		162,241
Consumer		12,157		12,819
Total FDIC acquired loans	$	199,216	$	203,297
Total loans:
Commercial non-real estate	$	7,145,406	$	6,995,824
Construction and land development		1,095,414		1,151,950
Commercial real estate		3,676,092		3,412,551
Residential mortgages		2,000,967		2,049,524
Consumer		2,060,245		2,093,465
Total loans	$	15,978,124	$	15,703,314

9

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

Originated loans

Loans reported as “originated” include both loans and leases originated for investment and acquired-performing loans where the discount (premium) has been fully accreted (amortized).  Originated loans are reported at the principal balance outstanding, net of unearned income.  Interest on loans and accretion of unearned income, including deferred loan fees, are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recognized in income as earned.

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

Acquired loans

Loans reported as “acquired” are those loans that were purchased in the 2011 Whitney Holding Corporation acquisition.  These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses.  At the time of the Whitney acquisition, the Whitney acquired loans were segregated between those considered to be performing (“acquired-performing”) and those with evidence of credit deterioration (“acquired-impaired”) based on such factors as past due status, nonaccrual status and credit risk ratings (rated substandard or worse).  The acquired loans were further segregated into loan pools designed to facilitate the development of expected cash flows to be used in estimating fair value for purchase accounting.  Acquired-performing loans are accounted for under ASC 310-20 and acquired-impaired loans are accounted for under ASC 310-30.

Acquired-performing loans were segregated into pools based on common risk characteristics such as loan type, credit risk ratings, and contractual interest rate and repayment terms.  The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, residential mortgage loans, and consumer loans, with further segregation within certain loan types as needed.  Expected cash flows, both principal and interest, from each pool were estimated based on key assumptions covering such factors as prepayments, default rates, and severity of loss given a default.  These assumptions were developed using both historical experience and the portfolio characteristics at acquisition as well as available market research.  The fair value for each acquired-performing pool was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

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

The acquired-impaired loans were segregated into pools by identifying loans with common credit risk profiles and were based primarily on characteristics such as loan type and market area in which originated.  The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, and residential mortgage loans, with further segregation within certain loan types as needed. The acquired-impaired loans were further disaggregated by geographic region in recognition of the differences in general economic conditions affecting borrowers in certain states.  The fair value estimate for each pool of acquired-impaired loans was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

The excess of estimated cash flows expected to be collected from an acquired-impaired loan pool over the pool’s carrying value is referred to as the accretable yield and is recognized in interest income using an effective yield method over the expected life of the loan pool.  Each pool of acquired-impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.  Acquired-impaired loans in pools with an accretable yield and expected cash flows that are reasonably estimable are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting.  Acquired-impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings even if they would otherwise qualify for such treatment.

10

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

FDIC acquired loans and the related loss share receivable

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

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

The following schedule shows activity in the loss share receivable for the threemonths ended March 31, 2016 and 2015.

	Three Months Ended
	March 31,		March 31,
(in thousands)	2016		2015
Balance, January 1	$	29,868	$	60,272
Amortization		(1,613)		(1,197)
Charge-offs, write-downs and other recoveries		(1,005)		(1,475)
External expenses qualifying under loss share agreement		465		298
Changes due to changes in cash flow projections		(2,189)		(421)
Net payments to (from) FDIC		302		(7,580)
Ending balance	$	25,828	$	49,897

The loss share agreement covering the non-single family FDIC acquired portfolio expired in December 2014.  The loss share agreement covering the single family portfolio expires in December 2019.

11

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following schedule shows activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 and 2015, as well as the corresponding recorded investment in loans at the end of each period.

			Construction
	Commercial		and land		Commercial		Residential
(in thousands)	non-real estate		development		real estate		mortgages		Consumer		Total
	Three Months Ended March 31, 2016
Originated loans
Allowance for loan  losses:
Beginning balance	$	108,982	$	4,985	$	14,059	$	7,690	$	22,310	$	158,026
Charge-offs		(17,667)		(110)		(898)		(175)		(5,843)		(24,693)
Recoveries		809		605		185		301		1,494		3,394
Net provision for loan losses		52,096		(1,627)		7,325		235		2,529		60,558
Ending balance	$	144,220	$	3,853	$	20,671	$	8,051	$	20,490	$	197,285
Ending balance:
Individually evaluated for impairment	$	26,502	$	185	$	1,332	$	125	$	16	$	28,160
Collectively evaluated for impairment		117,718		3,668		19,339		7,926		20,474		169,125
Loans:
Ending balance:	$	7,088,146	$	1,086,382	$	3,504,803	$	1,839,889	$	2,048,068	$	15,567,288
Individually evaluated for impairment		201,029		14,072		12,393		883		58		228,435
Collectively evaluated for impairment		6,887,117		1,072,310		3,492,410		1,839,006		2,048,010		15,338,853
Acquired loans
Allowance for loan  losses:
Beginning balance	$	—	$	—	$	33	$	—	$	—	$	33
Charge-offs		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—
Net provision for loan losses		—		—		(26)		—		—		(26)
Ending balance	$	—	$	—	$	7	$	—	$	—	$	7
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	7	$	—	$	—	$	7
Amounts related to acquired-impaired loans		—		—		—		—		—		—
Collectively evaluated for impairment		—		—		—		—		—		—
Loans:
Ending balance:	$	51,949	$	2,250	$	156,285	$	1,116	$	20	$	211,620
Individually evaluated for impairment		—		—		2,306		—		—		2,306
Acquired-impaired loans		7,348		2,148		12,045		1,116		20		22,677
Collectively evaluated for impairment		44,601		102		141,934		—		—		186,637

12

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

			Construction
	Commercial		and land		Commercial		Residential
(in thousands)	non-real estate		development		real estate		mortgages		Consumer		Total
	Three Months Ended March 31, 2016
FDIC acquired loans
Allowance for loan  losses:
Beginning balance	$	446	$	657	$	1,807	$	17,663	$	2,547	$	23,120
Charge-offs		—		(18)		(29)		—		—		(47)
Recoveries		3		35		36		1		39		114
Net provision for loan losses		7		(151)		(303)		1,130		(1,179)		(496)
Increase (decrease) in FDIC loss share receivable		(17)		—		—		(2,153)		(19)		(2,189)
Ending balance	$	439	$	523	$	1,511	$	16,641	$	1,388	$	20,502
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Amounts related to acquired-impaired loans		439		523		1,511		16,641		1,388		20,502
Collectively evaluated for impairment		—		—		—		—		—		—
Loans:
Ending balance:	$	5,311	$	6,782	$	15,004	$	159,962	$	12,157	$	199,216
Individually evaluated for impairment		—		—		—		—		—		—
Acquired-impaired loans		5,311		6,782		15,004		159,962		12,157		199,216
Collectively evaluated for impairment		—		—		—		—		—		—
Total loans
Allowance for loan  losses:
Beginning balance	$	109,428	$	5,642	$	15,899	$	25,353	$	24,857	$	181,179
Charge-offs		(17,667)		(128)		(927)		(175)		(5,843)		(24,740)
Recoveries		812		640		221		302		1,533		3,508
Net provision for loan losses		52,103		(1,778)		6,996		1,365		1,350		60,036
Increase (decrease) in FDIC loss share receivable		(17)		—		—		(2,153)		(19)		(2,189)
Ending balance	$	144,659	$	4,376	$	22,189	$	24,692	$	21,878	$	217,794
Ending balance:
Individually evaluated for impairment	$	26,502	$	185	$	1,339	$	125	$	16	$	28,167
Amounts related to acquired-impaired loans		439		523		1,511		16,641		1,388		20,502
Collectively evaluated for impairment		117,718		3,668		19,339		7,926		20,474		169,125
Loans:
Ending balance:	$	7,145,406	$	1,095,414	$	3,676,092	$	2,000,967	$	2,060,245	$	15,978,124
Individually evaluated for impairment		201,029		14,072		14,699		883		58		230,741
Acquired-impaired loans		12,659		8,930		27,049		161,078		12,177		221,893
Collectively evaluated for impairment		6,931,718		1,072,412		3,634,344		1,839,006		2,048,010		15,525,490

13

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

			Construction
	Commercial		and land		Commercial		Residential
(in thousands)	non-real estate		development		real estate		mortgages		Consumer		Total
	Three Months ended March 31, 2015
Originated loans
Allowance for loan  losses:
Beginning balance	$	50,258	$	5,413	$	16,544	$	8,051	$	17,435	$	97,701
Charge-offs		(1,697)		(747)		(251)		(1,209)		(3,556)		(7,460)
Recoveries		981		1,243		(3)		305		1,280		3,806
Net provision for loan losses		6,754		(1,500)		(966)		738		1,421		6,447
Ending balance	$	56,296	$	4,409	$	15,324	$	7,885	$	16,580	$	100,494
Ending balance:
Individually evaluated for impairment	$	529	$	71	$	147	$	88	$	3	$	838
Collectively evaluated for impairment		55,767		4,338		15,177		7,797		16,577		99,656
Loans:
Ending balance:	$	5,861,887	$	1,087,449	$	2,492,351	$	1,736,033	$	1,742,810	$	12,920,530
Individually evaluated for impairment		14,566		4,381		17,210		2,423		120		38,700
Collectively evaluated for impairment		5,847,321		1,083,068		2,475,141		1,733,610		1,742,690		12,881,830
Acquired loans
Allowance for loan  losses:
Beginning balance	$	—	$	—	$	477	$	—	$	—	$	477
Charge-offs		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—
Net provision for loan losses		—		—		(223)		—		—		(223)
Ending balance	$	—	$	—	$	254	$	—	$	—	$	254
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	254	$	—	$	—	$	254
Amounts related to acquired-impaired loans		—		—		—		—		—		—
Collectively evaluated for impairment		—		—		—		—		—		—
Loans:
Ending balance:	$	118,260	$	14,579	$	629,975	$	2,485	$	25	$	765,324
Individually evaluated for impairment		—		—		2,579		—		—		2,579
Acquired-impaired loans		8,708		12,801		21,226		2,485		25		45,245
Collectively evaluated for impairment		109,552		1,778		606,170		—		—		717,500

14

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

			Construction
	Commercial		and land		Commercial		Residential
(in thousands)	non-real estate		development		real estate		mortgages		Consumer		Total
	Three Months ended March 31, 2015
FDIC acquired loans
Allowance for loan  losses:
Beginning balance	$	911	$	1,008	$	4,061	$	20,609	$	3,995	$	30,584
Charge-offs		(127)		(276)		(2,368)		(93)		(140)		(3,004)
Recoveries		14		406		113		—		16		549
Net provision for loan losses		(2)		(6)		202		(195)		(69)		(70)
Increase (decrease) in FDIC loss share receivable		(13)		(34)		1,207		(1,171)		(410)		(421)
Ending balance	$	783	$	1,098	$	3,215	$	19,150	$	3,392	$	27,638
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Amounts related to acquired-impaired loans		783		1,098		3,215		19,150		3,392		27,638
Collectively evaluated for impairment		—		—		—		—		—		—
Loans:												—
Ending balance:	$	6,937	$	11,482	$	27,777	$	175,367	$	16,969	$	238,532
Individually evaluated for impairment		—		—		—		—		—		—
Acquired-impaired loans		6,937		11,482		27,777		175,367		16,969		238,532
Collectively evaluated for impairment		—		—		—		—		—		—
Total loans
Allowance for loan  losses:
Beginning balance	$	51,169	$	6,421	$	21,082	$	28,660	$	21,430	$	128,762
Charge-offs		(1,824)		(1,023)		(2,619)		(1,302)		(3,696)		(10,464)
Recoveries		995		1,649		110		305		1,296		4,355
Net provision for loan losses		6,752		(1,506)		(987)		543		1,352		6,154
Increase (decrease) in FDIC loss share receivable		(13)		(34)		1,207		(1,171)		(410)		(421)
Ending balance	$	57,079	$	5,507	$	18,793	$	27,035	$	19,972	$	128,386
Ending balance:
Individually evaluated for impairment	$	529	$	71	$	401	$	88	$	3	$	1,092
Amounts related to acquired-impaired loans		783		1,098		3,215		19,150		3,392		27,638
Collectively evaluated for impairment		55,767		4,338		15,177		7,797		16,577		99,656
Loans:
Ending balance:	$	5,987,084	$	1,113,510	$	3,150,103	$	1,913,885	$	1,759,804	$	13,924,386
Individually evaluated for impairment		14,566		4,381		19,789		2,423		120		41,279
Acquired-impaired loans		15,645		24,283		49,003		177,852		16,994		283,777
Collectively evaluated for impairment		5,956,873		1,084,846		3,081,311		1,733,610		1,742,690		13,599,330

15

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

	March 31,		December 31,
(in thousands)	2016		2015
Originated loans:
Commercial non-real estate	$	165,930	$	88,743
Construction and land development		16,997		17,294
Commercial real estate		19,217		17,824
Residential mortgages		23,713		23,799
Consumer		8,538		9,061
Total originated loans	$	234,395	$	156,721
Acquired loans:
Commercial non-real estate	$	—	$	—
Construction and land development		—		—
Commercial real estate		2,908		2,992
Residential mortgages		—		—
Consumer		—		—
Total acquired loans	$	2,908	$	2,992
FDIC acquired loans:
Commercial non-real estate	$	—	$	—
Construction and land development		—		—
Commercial real estate		—		—
Residential mortgages		—		—
Consumer		—		—
Total FDIC acquired loans	$	—	$	—
Total loans:
Commercial non-real estate		165,930		88,743
Construction and land development		16,997		17,294
Commercial real estate		22,125		20,816
Residential mortgages		23,713		23,799
Consumer		8,538		9,061
Total loans	$	237,303	$	159,713

Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $18.3 million and $8.8 million at March 31, 2016 and December 31, 2015, respectively.  Total TDRs, both accruing and nonaccruing, were $63.9 million as of March 31, 2016 and $13.1 million at December 31, 2015.

16

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The table below details TDRs that were modified during the three months ended March 31, 2016 and March 31, 2015 by portfolio segment.  The TDRs during the three months ended March 31, 2016 and 2015 were extended amortization, other modification of payment terms, or covenant violations.  All are individually evaluated for impairment.

	Three Months Ended
($ in thousands)	March 31, 2016					March 31, 2015
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
Troubled Debt Restructurings:	Contracts	Investment		Investment		Contracts	Investment		Investment
Originated loans:
Commercial non-real estate	11	$	51,246	$	51,246	—	$	—	$	—
Construction and land development	—		—		—	—		—		—
Commercial real estate	—		—		—	—		—		—
Residential mortgages	—		—		—	2		68		68
Consumer	—		—		—	1		20		20
Total originated loans	11	$	51,246	$	51,246	3	$	88	$	88
Acquired loans:
Commercial non-real estate	—	$	—	$	—	—	$	—	$	—
Construction and land development	—		—		—	—		—		—
Commercial real estate	—		—		—	—		—		—
Residential mortgages	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Total acquired loans	—	$	—	$	—	—	$	—	$	—
FDIC acquired loans:
Commercial non-real estate	—	$	—	$	—	—	$	—	$	—
Construction and land development	—		—		—	—		—		—
Commercial real estate	—		—		—	—		—		—
Residential mortgages	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Total FDIC acquired loans	—	$	—	$	—	—	$	—	$	—
Total loans:
Commercial non-real estate	11	$	51,246	$	51,246	—	$	—	$	—
Construction and land development	—		—		—	—		—		—
Commercial real estate	—		—		—	—		—		—
Residential mortgages	—		—		—	2		68		68
Consumer	—		—		—	1		20		20
Total loans	11	$	51,246	$	51,246	3	$	88	$	88

No TDRs that subsequently defaulted within twelve months of modification were recorded in the three months ended March 31, 2016 or 2015. 

17

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

	March 31, 2016						December 31, 2015
				Unpaid						Unpaid
		Recorded		Principal		Related		Recorded		Principal		Related
(in thousands)		Investment		Balance		Allowance		Investment		Balance		Allowance
Originated loans:
With no related allowance recorded:
Commercial non-real estate	$	77,155	$	85,295	$	—	$	34,788	$	37,285	$	—
Construction and land development		12,413		12,413		—		12,461		12,461		—
Commercial real estate		5,939		6,140		—		7,785		8,499		—
Residential mortgages		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
		95,507		103,848		—		55,034		58,245		—
With an allowance recorded:
Commercial non-real estate		123,874		125,744		26,502		46,834		47,703		19,031
Construction and land development		1,659		2,315		185		1,765		2,323		392
Commercial real estate		6,454		6,521		1,332		6,406		6,413		1,372
Residential mortgages		883		1,394		125		895		1,405		127
Consumer		58		58		16		152		152		33
		132,928		136,032		28,160		56,052		57,996		20,955
Total:
Commercial non-real estate		201,029		211,039		26,502		81,622		84,988		19,031
Construction and land development		14,072		14,728		185		14,226		14,784		392
Commercial real estate		12,393		12,661		1,332		14,191		14,912		1,372
Residential mortgages		883		1,394		125		895		1,405		127
Consumer		58		58		16		152		152		33
Total originated loans	$	228,435	$	239,880	$	28,160	$	111,086	$	116,241	$	20,955
Acquired loans:
With an allowance recorded:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land development		—		—		—		—		—		—
Commercial real estate		2,306		2,343		7		2,340		2,382		33
Residential mortgages		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
		2,306		2,343		7		2,340		2,382		33
Total:
Commercial non-real estate		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—
Commercial real estate		2,306		2,343		7		2,340		2,382		33
Residential mortgages		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total acquired loans	$	2,306	$	2,343	$	7	$	2,340	$	2,382	$	33

18

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

	March 31, 2016						December 31, 2015
				Unpaid						Unpaid
		Recorded		Principal		Related		Recorded		Principal		Related
(in thousands)		Investment		Balance		Allowance		Investment		Balance		Allowance
Total loans:
With no related allowance recorded:
Commercial non-real estate	$	77,155	$	85,295	$	—	$	34,788	$	37,285	$	—
Construction and land development		12,413		12,413		—		12,461		12,461		—
Commercial real estate		5,939		6,140		—		7,785		8,499		—
Residential mortgages		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
		95,507		103,848		—		55,034		58,245		—
With an allowance recorded:
Commercial non-real estate		123,874		125,744		26,502		46,834		47,703		19,031
Construction and land development		1,659		2,315		185		1,765		2,323		392
Commercial real estate		8,760		8,864		1,339		8,746		8,795		1,405
Residential mortgages		883		1,394		125		895		1,405		127
Consumer		58		58		16		152		152		33
		135,234		138,375		28,167		58,392		60,378		20,988
Total:
Commercial non-real estate		201,029		211,039		26,502		81,622		84,988		19,031
Construction and land development		14,072		14,728		185		14,226		14,784		392
Commercial real estate		14,699		15,004		1,339		16,531		17,294		1,405
Residential mortgages		883		1,394		125		895		1,405		127
Consumer		58		58		16		152		152		33
Total loans	$	230,741	$	242,223	$	28,167	$	113,426	$	118,623	$	20,988

19

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

	Three Months Ended
	March 31, 2016				March 31, 2015
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(in thousands)	Investment		Recognized		Investment		Recognized
Originated loans:
With no related allowance recorded:
Commercial non-real estate	$	55,972	$	—	$	7,196	$	—
Construction and land development		12,437		—		1,915		—
Commercial real estate		6,862		9		9,563		10
Residential mortgages		—		—		517		1
Consumer		—		—		51		—
		75,271		9		19,242		11
With an allowance recorded:
Commercial non-real estate		85,354		182		2,081		2
Construction and land development		1,712		—		4,401		32
Commercial real estate		6,430		27		5,103		17
Residential mortgages		889		2		2,023		11
Consumer		105		1		13		2
		94,490		212		13,621		64
Total:
Commercial non-real estate		141,326		182		9,277		2
Construction and land development		14,149		—		6,316		32
Commercial real estate		13,292		36		14,666		27
Residential mortgages		889		2		2,540		12
Consumer		105		1		64		2
Total originated loans	$	169,761	$	221	$	32,863	$	75
Acquired loans:
With no related allowance recorded:
Commercial non-real estate	$	—	$	—	$	—	$	—
Construction and land development		—		—		—		—
Commercial real estate		—		—		—		—
Residential mortgages		—		—		—		—
Consumer		—		—		—		—
		—		—		—		—
With an allowance recorded:
Commercial non-real estate		—		—		—		—
Construction and land development		—		—		—		—
Commercial real estate		2,323		—		2,635		—
Residential mortgages		—		—		—		—
Consumer		—		—		—		—
		2,323		—		2,635		—
Total:
Commercial non-real estate		—		—		—		—
Construction and land development		—		—		—		—
Commercial real estate		2,323		—		2,635		—
Residential mortgages		—		—		—		—
Consumer		—		—		—		—
Total acquired loans	$	2,323	$	—	$	2,635	$	—

20

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

	Three Months Ended
	March 31, 2016				March 31, 2015
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(in thousands)	Investment		Recognized		Investment		Recognized
Total loans:
With no related allowance recorded:
Commercial non-real estate	$	55,972	$	—	$	7,196	$	—
Construction and land development		12,437		—		1,915		—
Commercial real estate		6,862		9		9,563		10
Residential mortgages		—		—		517		1
Consumer		—		—		51		—
		75,271		9		19,242		11
With an allowance recorded:
Commercial non-real estate		85,354		182		2,081		2
Construction and land development		1,712		—		4,401		32
Commercial real estate		8,753		27		7,738		17
Residential mortgages		889		2		2,023		11
Consumer		105		1		13		2
		96,813		212		16,256		64
Total:
Commercial non-real estate		141,326		182		9,277		2
Construction and land development		14,149		—		6,316		32
Commercial real estate		15,615		36		17,301		27
Residential mortgages		889		2		2,540		12
Consumer		105		1		64		2
Total loans	$	172,084	$	221	$	35,498	$	75

21

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The tables below present the age analysis of past due loans at March 31, 2016 and December 31, 2015.  FDIC acquired and acquired-impaired loans accounted for in pools with an accretable yield are considered to be current.

													Recorded
					Greater than								investment
	30-59 days		60-89 days		90 days		Total				Total		> 90 days and
March 31, 2016	past due		past due		past due		past due		Current		Loans		still accruing
(in thousands)
Originated loans:
Commercial non-real estate	$	35,443	$	2,843	$	23,366	$	61,652	$	7,026,494	$	7,088,146	$	2,503
Construction and land development		6,007		126		18,684		24,817		1,061,565		1,086,382		3,610
Commercial real estate		7,873		1,042		13,789		22,704		3,482,099		3,504,803		1,892
Residential mortgages		18,644		6,615		10,375		35,634		1,804,255		1,839,889		123
Consumer		14,050		3,500		6,171		23,721		2,024,347		2,048,068		1,098
Total	$	82,017	$	14,126	$	72,385	$	168,528	$	15,398,760	$	15,567,288	$	9,226
Acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	51,949	$	51,949	$	—
Construction and land development		—		—		—		—		2,250		2,250		—
Commercial real estate		—		—		453		453		155,832		156,285		—
Residential mortgages		—		—		—		—		1,116		1,116		—
Consumer		—		—		—		—		20		20		—
Total	$	—	$	—	$	453	$	453	$	211,167	$	211,620	$	—
FDIC acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	5,311	$	5,311	$	—
Construction and land development		—		—		—		—		6,782		6,782		—
Commercial real estate		—		—		—		—		15,004		15,004		—
Residential mortgages		—		—		—		—		159,962		159,962		—
Consumer		—		—		—		—		12,157		12,157		—
Total	$	—	$	—	$	—	$	—	$	199,216	$	199,216	$	—
Total loans:
Commercial non-real estate	$	35,443	$	2,843	$	23,366	$	61,652	$	7,083,754	$	7,145,406	$	2,503
Construction and land development		6,007		126		18,684		24,817		1,070,597		1,095,414		3,610
Commercial real estate		7,873		1,042		14,242		23,157		3,652,935		3,676,092		1,892
Residential mortgages		18,644		6,615		10,375		35,634		1,965,333		2,000,967		123
Consumer		14,050		3,500		6,171		23,721		2,036,524		2,060,245		1,098
Total	$	82,017	$	14,126	$	72,838	$	168,981	$	15,809,143	$	15,978,124	$	9,226

22

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

													Recorded
					Greater than								investment
	30-59 days		60-89 days		90 days		Total				Total		> 90 days and
December 31, 2015	past due		past due		past due		past due		Current		Loans		still accruing
(in thousands)
Originated loans:
Commercial non-real estate	$	17,406	$	1,468	$	25,007	$	43,881	$	6,886,572	$	6,930,453	$	3,060
Construction and land development		19,886		436		4,043		24,365		1,115,378		1,139,743		1,230
Commercial real estate		6,754		1,329		12,503		20,586		3,199,923		3,220,509		1,034
Residential mortgages		18,657		4,360		11,840		34,857		1,852,399		1,887,256		163
Consumer		16,309		4,432		8,645		29,386		2,051,240		2,080,626		2,166
Total	$	79,012	$	12,025	$	62,038	$	153,075	$	15,105,512	$	15,258,587	$	7,653
Acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	59,843	$	59,843	$	—
Construction and land development		—		—		—		—		5,080		5,080		—
Commercial real estate		15		76		525		616		175,844		176,460		—
Residential mortgages		—		—		—		—		27		27		—
Consumer		—		—		—		—		20		20		—
Total	$	15	$	76	$	525	$	616	$	240,814	$	241,430	$	—
FDIC acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	5,528	$	5,528	$	—
Construction and land development		—		—		—		—		7,127		7,127		—
Commercial real estate		—		—		—		—		15,582		15,582		—
Residential mortgages		—		—		—		—		162,241		162,241		—
Consumer		—		—		—		—		12,819		12,819		—
Total	$	—	$	—	$	—	$	—	$	203,297	$	203,297	$	—
Total loans:
Commercial non-real estate	$	17,406	$	1,468	$	25,007	$	43,881	$	6,951,943	$	6,995,824	$	3,060
Construction and land development		19,886		436		4,043		24,365		1,127,585		1,151,950		1,230
Commercial real estate		6,769		1,405		13,028		21,202		3,391,349		3,412,551		1,034
Residential mortgages		18,657		4,360		11,840		34,857		2,014,667		2,049,524		163
Consumer		16,309		4,432		8,645		29,386		2,064,079		2,093,465		2,166
Total	$	79,027	$	12,101	$	62,563	$	153,691	$	15,549,623	$	15,703,314	$	7,653

The following tables present the credit quality indicators of the Company’s various classes of loans at March 31, 2016 and December 31, 2015. 

Commercial Non-Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	March 31, 2016								December 31, 2015
(in thousands)	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Grade:
Pass	$	5,895,649	$	44,847	$	2,068	$	5,942,564	$	6,205,372	$	53,381	$	2,110	$	6,260,863
Pass-Watch		298,176		—		733		298,909		167,720		—		869		168,589
Special Mention		208,731		2		—		208,733		211,230		—		—		211,230
Substandard		683,449		7,100		2,510		693,059		346,087		6,462		2,549		355,098
Doubtful		2,141		—		—		2,141		44		—		—		44
Total	$	7,088,146	$	51,949	$	5,311	$	7,145,406	$	6,930,453	$	59,843	$	5,528	$	6,995,824

23

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Construction Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	March 31, 2016								December 31, 2015
(in thousands)	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Grade:
Pass	$	1,036,847	$	837	$	1,455	$	1,039,139	$	1,092,299	$	910	$	2,087	$	1,095,296
Pass-Watch		22,947		150		1,885		24,982		5,709		223		909		6,841
Special Mention		592		—		21		613		12,017		—		280		12,297
Substandard		25,996		1,263		3,421		30,680		29,718		3,947		3,851		37,516
Total	$	1,086,382	$	2,250	$	6,782	$	1,095,414	$	1,139,743	$	5,080	$	7,127	$	1,151,950

Commercial Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	March 31, 2016								December 31, 2015
(in thousands)	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Grade:
Pass	$	3,293,852	$	136,879	$	3,114	$	3,433,845	$	3,058,342	$	159,750	$	3,117	$	3,221,209
Pass-Watch		60,595		1,684		2,233		64,512		41,830		2,355		2,296		46,481
Special Mention		42,170		4,804		1,143		48,117		40,576		5,112		1,364		47,052
Substandard		108,171		12,918		8,514		129,603		79,745		9,243		8,805		97,793
Doubtful		15		—		—		15		16		—		—		16
Total	$	3,504,803	$	156,285	$	15,004	$	3,676,092	$	3,220,509	$	176,460	$	15,582	$	3,412,551

Residential Mortgage Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status

	March 31, 2016								December 31, 2015
(in thousands)	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Performing	$	1,816,053	$	1,116	$	159,962	$	1,977,131	$	1,863,295	$	27	$	162,241	$	2,025,563
Nonperforming		23,836		—		—		23,836		23,961		—		—		23,961
Total	$	1,839,889	$	1,116	$	159,962	$	2,000,967	$	1,887,256	$	27	$	162,241	$	2,049,524

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status

	March 31, 2016								December 31, 2015
(in thousands)	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Performing	$	2,038,432	$	20	$	12,157	$	2,050,609	$	2,069,399	$	20	$	12,819	$	2,082,238
Nonperforming		9,636		—		—		9,636		11,227		—		—		11,227
Total	$	2,048,068	$	20	$	12,157	$	2,060,245	$	2,080,626	$	20	$	12,819	$	2,093,465

24

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

Commercial:

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

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

· Special Mention – a criticized asset category defined as having potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position.  Special mention credits are not considered part of the Classified credit categories and do not expose an 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 nor liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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

Residential and Consumer:

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

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

Loan review uses a risk-focused continuous monitoring program that provides for an independent, objective and timely review of credit risk within the Company. 

Changes in the carrying amount of acquired-impaired loans and accretable yield are presented in the following table for the three months ended March 31, 2016 and the year ended December 31, 2015.

	March 31, 2016								December 31, 2015
	FDIC acquired				Acquired				FDIC acquired				Acquired
	Carrying				Carrying				Carrying				Carrying
	Amount		Accretable		Amount		Accretable		Amount		Accretable		Amount		Accretable
(in thousands)	of Loans		Yield		of Loans		Yield		of Loans		Yield		of Loans		Yield
Balance at beginning of period	$	203,297	$	91,564	$	22,541	$	37,924	$	252,409	$	112,788	$	61,276	$	74,668
Payments received, net		(7,290)		(28)		(2,145)		(2,598)		(62,579)		(422)		(53,268)		(21,556)
Accretion		3,209		(3,209)		2,281		(2,281)		13,467		(13,467)		14,533		(14,533)
Increase (decrease) in expected cash flows based on actual cash flows and changes in cash flow assumptions		—		4,207		—		56		—		(3,537)		—		(701)
Net transfers to (from) nonaccretable difference to accretable yield		—		3,776		—		947		—		(3,798)		—		46
Balance at end of period	$	199,216	$	96,310	$	22,677	$	34,048	$	203,297	$	91,564	$	22,541	$	37,924

Included in loans are $6.0million and $7.4 million of consumer loans secured by single family residential mortgage real estate that are in process of foreclosure as of March 31, 2016 and December 31, 2015, respectively.  Of these loans, $4.0million and $4.1 million, respectively, are covered by an FDIC loss share agreement that provides significant protection against losses.  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 $5.9 million and $9.3 million of foreclosed single family residential properties in other real estate owned as of March 31, 2016 and December 31, 2015, respectively.  Of these foreclosed properties, $1.1 million and $1.6 million as of March  31, 2016 and December 31, 2015, respectively, are also covered by the FDIC loss share agreement.

25

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4.  Securities Sold under Agreements to Repurchase

Included in short term borrowings at March 31, 2016was $419.0 million of customer securities sold under agreements to repurchase (“repurchase agreements”) that mature daily and were secured by agency securities.  The Company borrows funds on a secured basis by selling securities under agreements to repurchase, mainly in connection with treasury management services offered to its deposit customers.As the Companymaintains 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 very limited.

5.  Long-Term Debt

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

Long-term debt consisted of the following:

		March 31,		December 31,
(in thousands)		2016		2015
Subordinated notes payable, maturing June 2045	$	150,000	$	150,000
Subordinated notes payable, maturing April 2017		98,011		98,011
Term note payable, maturing December 2018		120,525		125,000
Other long-term debt		108,581		122,988
Less unamortized debt issuance costs		(5,872)		(5,854)
Total long-term debt less unamortized debt issuance costs	$	471,245	$	490,145

Long-term debt with its related unamortized debt issuance cost at March 31, 2016 is presented in the following table:

Long-term debt at March 31, 2016, consisted of the following:
				Unamortized
				Debt
				Issuance
(in thousands)		Principal		Costs
Subordinated notes payable, maturing June 2045	$	150,000	$	5,088
Subordinated notes payable, maturing April 2017		98,011		-
Term note payable, maturing December 2018		120,525		784
Other long-term debt		108,581		-
Total	$	477,117		5,872

26

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6.  Derivatives

Risk Management Objective of Using Derivatives

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

Fair Values of Derivative Instruments on the Balance Sheet

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

						Fair Values (1)
		Notional Amounts				Assets				Liabilities
	Type of	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
(in thousands)	Hedge	2016		2015		2016		2015		2016		2015
Derivatives designated as hedging instruments:
Interest rate swaps	Cash Flow	$	800,000	$	500,000	$	1,808	$	—	$	—	$	281
		$	800,000	$	500,000	$	1,808	$	—	$	—	$	281
Derivatives not designated as hedging instruments:
Interest rate swaps (2)	N/A	$	826,734	$	780,871	$	32,510	$	20,622	$	33,838	$	21,007
Risk participation agreements	N/A		89,723		83,430		112		83		217		162
Forward commitments to sell residential mortgage loans	N/A		83,935		55,128		51		263		979		336
Interest rate-lock commitments on residential mortgage loans	N/A		60,607		38,853		697		243		24		167
Foreign exchange forward contracts	N/A		37,015		44,068		1,301		2,040		1,278		2,015
		$	1,098,014	$	1,002,350	$	34,671	$	23,251	$	36,336	$	23,687

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

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

Cash Flow Hedges of Interest Rate Risk

The Company is party to five interest rate swap agreementsdesignated as 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.  The five swap agreements expire as follows:  notional amount of $300 million expires in January 2017; notional amount of $200 million expires in June 2017; and three contracts each with notional amounts of $100 million expire in April 2018,  2019, and 2020. 

During the terms of the swap agreements, the effective portion of changes in the fair value of the derivative instruments are recorded in AOCI and subsequently reclassified into earnings in the periods that the hedged forecasted variable-rate interest payments affect earnings.  The impact on AOCI is reflected in footnote 7.  There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings.

Derivatives Not Designated as Hedges

Customer interest rate derivative program

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

27

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

Risk participation agreements

The Bank also enters into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts.  In those instances where the Bank has assumed credit risk, it is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it is a party to the related loan agreement with the borrower.  In those instances in which the Bank has sold credit risk, it is the sole counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks participate in the related loan 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 their mortgage banking activities.  These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.

Customer foreign exchange forward contract derivatives

The Bank enters into foreign exchange forward derivative agreements, primarily forward currency contracts, with commercial 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.

Effect of Derivative Instruments on the Income Statement

Derivative income consisting primarily of customer interest rate swap fees, net of fair value adjustments, is reflected in the income statement in other noninterest income, totaling ($0.1) million and ($0.1) million for the three months ended March 31, 2016 and 2015, respectively.  The impact to interest income from cash flow hedges was $0.3 million and $0.4 million for the three months ended March 31, 2016 and 2015, respectively. 

Credit risk-related Contingent Features

Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as the downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution.  These derivative agreements also contain provisions regarding the posting of collateral by each party.  As of March 31, 2016, the aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position was$31.9 million, for which the Bank had posted collateral of $33.1 million. 

28

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Offsetting Assets and Liabilities

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

(in thousands)			Gross Amounts Offset in		Net Amounts  Presented in		Gross Amounts Not Offset in the Statement of Financial Position
Description	Gross Amounts Recognized		the Statement of Financial Position		the Statement  of Financial Position		Financial Instruments		Cash Collateral		Net Amount
As of March 31, 2016
Derivative Assets	$	1,987	$	—	$	1,987	$	1,987	$	—	$	—
Derivative Liabilities	$	33,890	$	—	$	33,890	$	1,987	$	33,071	$	(1,168)

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

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

7.Stockholders’ Equity

Stock Repurchase Program

On August 28, 2015, the Company’s board of directors approved a stock repurchase plan that authorizes the repurchase of up to 5%, or approximately 3.9 million shares of its outstanding common stock. The approved plan allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company from time to time until September 30, 2016. Under this plan, the Company has repurchased 741,393 shares of its common stock at an average price of $27.44 per share through March 31, 2016.  There were no shares of common stock repurchased during the first quarter of 2016.

Accumulated Other Comprehensive Income (Loss)

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

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

29

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

	Available		HTM Securities				Loss on
	for Sale		Transferred		Employee		Effective Cash
(in thousands)	Securities		from AFS		Benefit Plans		Flow Hedges		Total
Balance, December 31, 2014	$	18,001	$	(19,074)	$	(48,626)	$	(375)	$	(50,074)
Other comprehensive income before income taxes:
Net change in unrealized gain		4,421		—		—		992		5,413
Reclassification of net losses realized and included in earnings		(165)		—		770		—		605
Amortization of unrealized net loss on securities transferred to HTM		—		647		—		—		647
Income tax expense		1,481		238		280		361		2,360
Balance, March 31, 2015	$	20,776	$	(18,665)	$	(48,136)	$	256	$	(45,769)
Balance, December 31, 2015	$	4,268	$	(16,795)	$	(67,890)	$	(178)	$	(80,595)
Other comprehensive income before income taxes:
Net change in unrealized gain		26,882		—		—		2,090		28,972
Reclassification of net (gain) losses realized and included in earnings		(346)		—		1,437		—		1,091
Amortization of unrealized net loss on securities transferred to HTM		—		798		—		—		798
Income tax expense		9,751		292		525		764		11,332
Balance, March 31, 2016	$	21,053	$	(16,289)	$	(66,978)	$	1,148	$	(61,066)

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

	Three Months Ended
Amount reclassified from AOCI (a)	March 31,				Affected line item on
(in thousands)		2016		2015	the income statement
Gain on sale of AFS securities	$	346	$	165	Securities gains (losses)
Tax effect		(127)		(58)	Income taxes
Net of tax		219		107	Net income
Amortization of unrealized net loss on securities transferred to HTM		(798)		(647)	Interest income
Tax effect		292		238	Income taxes
Net of tax		(506)		(409)	Net income
Amortization of defined benefit pension and post-retirement items		(1,437)		(770)	Employee benefits expense (b)
Tax effect		525		280	Income taxes
Net of tax		(912)		(490)	Net income
Total reclassifications, net of tax	$	(1,199)	$	(792)	Net income

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

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

30

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

8.  Other Noninterest Income

Components of other noninterest income are as follows.

	Three Months Ended
	March 31,
(in thousands)	2016		2015
Income from bank-owned life insurance	$	2,550	$	2,666
Credit related fees		2,357		2,457
Loss from derivatives		(139)		(52)
Net gain on sale of assets		2,111		340
Safety deposit box income		478		486
Other miscellaneous		2,335		2,680
Total other noninterest income	$	9,692	$	8,577

9.  Other Noninterest Expense

Components of other noninterest expense are as follows.

	Three Months Ended
	March 31,
(in thousands)	2016		2015
Advertising	$	2,357	$	2,165
Ad valorem and franchise taxes		2,303		2,715
Printing and supplies		1,111		1,217
Insurance expense		835		922
Travel expense		949		1,219
Entertainment and contributions		1,632		1,639
Tax credit investment amortization		1,743		2,095
Other miscellaneous		5,779		2,834
Total other noninterest expense	$	16,709	$	14,806

10.  Earnings Per Share

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

31

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

	Three Months Ended
	March 31,
(in thousands, except per share data)	2016		2015
Numerator:
Net income to common shareholders	$	3,839	$	40,159
Net income allocated to participating securities - basic and diluted		97		935
Net income allocated to common shareholders - basic and diluted	$	3,742	$	39,224
Denominator:
Weighted-average common shares - basic	$	77,501	$	79,496
Dilutive potential common shares		171		165
Weighted-average common shares - diluted	$	77,672	$	79,661
Earnings per common share:
Basic	$	0.05	$	0.49
Diluted	$	0.05	$	0.49

Potential common shares consist of employee and director stock options.  These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-dilutive, i.e., increase earnings per share or reduce a loss per share.  Weighted-average anti-dilutive potential common shares totaled 656,623and 862,402, respectively, for the three months ended March 31, 2016 and March 31, 2015.

11.  Retirement Plans

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

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

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

					Other Post-
(in thousands)	Pension Benefits				retirement Benefits
Three Months Ended March 31,	2016		2015		2016		2015
Service cost	$	3,265	$	3,363	$	29	$	50
Interest cost		4,988		4,619		206		369
Expected return on plan assets		(8,891)		(8,213)		—		—
Amortization of net loss		1,468		644		(31)		125
Net periodic benefit cost	$	830	$	413	$	204	$	544

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

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

32

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

12.  Share-Based Payment Arrangements

Hancock maintains incentive compensation plans that provide for awards of share-based compensation to employees and directors.  These plans have been approved by the Company’s shareholders.  Detailed descriptions of these plans were included in Note 16 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. 

A summary of option activity for the three months ended March 31, 2016 is presented below.

				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
	Number of	Exercise		Term	Intrinsic
Options	Shares	Price		(Years)	Value ($000)
Outstanding at January 1, 2016	745,806	$	37.55
Cancelled/forfeited	(49,610)		34.61
Expired	(137,139)		42.20
Outstanding at March 31, 2016	559,057	$	36.67	4.19	$	—
Exercisable at March 31, 2016	493,714	$	37.57	3.95	$	—

There was nototal intrinsic value of options exercised at March 31, 2016 compared to $0.5 million at March 31, 2015.

The restricted and performance shares in the table below are subject to service requirements. A summary of the status of the Company’s nonvested restricted and performance shares as of March 31, 2016 and changes during the three months ended March 31, 2016, is presented in the following table.

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Nonvested at January 1, 2016	2,196,145	$	30.97
Granted	71,924		23.50
Vested	(24,402)		32.00
Forfeited	(98,606)		31.46
Nonvested at March 31, 2016	2,145,061	$	30.66

As of March 31, 2016, there were $42.3 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 3.4 years.  The total fair value of shares which vested during the three months ended March 31, 2016 and 2015 was $0.9 million for both periods.

During the three months ended March 31, 2016, the Company granted 35,587 performance shares subject to a total shareholder return (TSR) performance metric with a grant date fair value of $24.42 per share and 35,587 performance shares subject to a core earnings per share performance metric with a grant date fair value of $22.58 per share to key members of executive management. The number of performance shares subject to TSR that ultimately vest at the end of the three-year performance period, if any, will be based on the relative rank of the Company’sthree-year TSR among the TSRs of a peer group of 44 regional banks. The fair value of the performance shares subject to TSR at the grant date was determined using a Monte Carlo simulation method.  The number of performance shares subject to core earnings per share that ultimately vest will be based on the Company’s attainment of certain core earnings per share goals over the two-year performance period.  The maximum number of performance shares that could vest is 200% of the target award.  Compensation expense for these performance shares is recognized on a straight-line basis over the three-year service period.

33

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

13.  Fair Value

The Financial Accounting Standards Board (“FASB”) defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.   The FASB’s guidance also established a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure fair value, giving preference to quoted prices in active markets for identical assets or liabilities (“level 1”) and the lowest priority to unobservable inputs such as a reporting entity’s own data (“level 3”).Level 2inputs includequoted 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.

	March 31, 2016
(in thousands)	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	—	$	125	$	125
Municipal obligations		—		87,939		87,939
Corporate debt securities		—		3,500		3,500
Mortgage-backed securities		—		1,765,974		1,765,974
Collateralized mortgage obligations		—		289,166		289,166
Equity securities		2,762		—		2,762
Total available for sale securities		2,762		2,146,704		2,149,466
Derivative assets (1)		—		36,479		36,479
Total recurring fair value measurements - assets	$	2,762	$	2,183,183	$	2,185,945
Liabilities
Derivative liabilities (1)	$	—	$	36,336	$	36,336
Total recurring fair value measurements - liabilities	$	—	$	36,336	$	36,336

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

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

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

34

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities and certain other debt and equity securities.  Level 2 classified securities include obligations of U.S. Government agencies and U.S. Government-sponsored agencies, residential mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds.   The level 2 fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-standard pricing models.  Substantially all of the model inputs are observable in the marketplace or can be supported by observable data. 

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

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

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

Fair Value of Assets Measured on a Nonrecurring Basis

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

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

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

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

	March 31, 2016
(in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	179,627	$	—	$	179,627
Other real estate owned		—		—		14,508		14,508
Total nonrecurring fair value measurements	$	—	$	179,627	$	14,508	$	194,135

35

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

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 Federal Home Loan Bank (“FHLB”) Borrowings - For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

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

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

36

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

	March 31, 2016
							Total Fair		Carrying
(in thousands)	Level 1		Level 2		Level 3		Value		Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	442,650	$	—	$	—	$	442,650	$	442,650
Available for sale securities		2,762		2,146,704		—		2,149,466		2,149,466
Held to maturity securities		—		2,566,799		—		2,566,799		2,518,371
Loans, net		—		179,627		15,761,305		15,940,932		15,760,330
Loans held for sale		—		24,001		—		24,001		24,001
Derivative financial instruments		—		36,479		—		36,479		36,479
Financial liabilities:
Deposits	$	—	$	—	$	18,651,845	$	18,651,845	$	18,656,150
Federal funds purchased		6,825		—		—		6,825		6,825
Securities sold under  agreements to repurchase		418,962		—		—		418,962		418,962
FHLB borrowings		675,000		—		—		675,000		675,000
Long-term debt		—		476,530		—		476,530		471,245
Derivative financial instruments		—		36,336		—		36,336		36,336

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

37

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

14.  Recent Accounting Pronouncements

New Accounting Standards Adopted in 2016

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

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

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

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

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

38

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Recently Issued but Not Yet Adopted Accounting Standards

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” that clarifies the identification of performance obligations and licensing from revenue from contracts with customers.  The amendments help determine whether promises to transfer goods or services to a customer are separately identifiable by emphasizing that an entity determines whether the nature of its promise in the contract is to transfer each of the goods or services or whether the promise is to transfer a combined item (or items) to which the promised goods and/or services are inputs. In addition, the amendments clarify how to determine whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property or a right to access the entity’s intellectual property.  Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing this pronouncement and adoption of this guidance, but it is not expected to have a material impact on the Company’s financial condition or results of operations.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” to improve the accounting for employee share-based payments. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is currently assessing this pronouncement and the impact of adoption. 

In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” that improves the operability and understandability of the implementation on guidance on principal versus agent considerations.  The amendments relate to when another party, along with the entity, is involved in providing a good or service to a customer.  It requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (i.e., the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (i.e., the entity is an agent).  Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In March 2016, the FASB issued ASU 2016-07 “Investments —Equity Method and Joint Ventures (Topic 323)” that simplifies the transition to the equity method of accounting.  The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.  The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.  Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.  The amendments require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.  The amendments are effective for all entities for fiscal years beginning after December 15, 2016.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.  

In March 2016, the FASB issued ASU 2016-06 “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments” that requires embedded derivatives to be separated from the host contract and accounted for separately as derivatives if certain criteria are met.  The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options.  The amendments clarify what steps are required when assessing whether the economic characteristics and risks or call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative.  Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credits risks.  Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years.  Early adoption is permitted.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In March 2016, the FASB issued ASU 2016-05 “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships” that clarifies that a change in the counterparty to a derivative instrument that has been

39

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship.  The amendments apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument.  The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.  The amendments may be applied on either a prospective basis or a modified retrospective basis.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In March 2016, the FASB issued ASU 2016-04 “Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products” to provide guidance to entities that offer certain prepaid stored value products, such as prepaid gift cards, prepaid telecommunication cards, and traveler’s checks.  The amendments provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606 Revenue from Contracts with Customers.  The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  These amendments can either be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective, or retrospectively to each period presented.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

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

In January 2016, the FASB issued an ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” that improves the recognition and measurement of financial instruments through targeted changes to existing GAAP. It requires equity investments (except those that are accounted for under the equity method of accounting or result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It also requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” regarding revenue from contracts with customers affecting any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017. The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

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

OVERVIEW

NON-GAAP FINANCIAL MEASURES

Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, management uses several non-GAAP financial measures including Operating Income, Pre-Tax, Pre-Provision Profit, Core Net Interest Income and Core Net Interest Margin. These measures are provided to assist the reader with better understanding the Company’s financial condition and results of operations.

We define Operating Income as net income less tax-effected nonoperating items.  Management believes this is a useful financial measure as it enables investors to assess the financial performance of our ongoing operations and compare the Company’s fundamental operational performance from period to period. A reconciliation of net income to operating income is included in Selected Financial Data. The components of nonoperating expense are further discussed in the Noninterest Expense section of this item.

We define Pre-Tax, Pre-Provision Profit as taxable equivalent (te) net interest income and noninterest income less noninterest expense.  Management believes that Pre-Tax, Pre-Provision Profit is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.  A reconciliation of net income to pre-tax, pre-provision profit is included in Selected Financial Data.

We define Core Net Interest Income as net interest income (te) excluding net purchase accounting accretion resulting from the fair market value adjustments related to the purchases of Peoples First in 2009 and Whitney in 2011.  We define Core Net Interest Margin as reported (te) core net interest income (annualized) expressed as a percentage of average earning assets. A reconciliation of reported net interest income to core net interest income and reported net interest margin to core net interest margin is included in the Net Interest Income section of this item. Management believes that core net interest income and core net interest margin provide a useful measure to investors regarding the Company’s performance period over period as well as providing investors with assistance in understanding the success management has experienced in executing its strategic initiatives.

Recent Economic and Industry Developments

Energy Industry Impact

WTI Crude Oil continued to trade below $38 per barrel during the first quarter of 2016, dropping below $28 per barrel for a short time period in early February.  Its March 31, 2016 closing price of approximately $37 per barrel was down almost 64% from July 2014. The price of natural gas, which experienced a similar percentage decline as WTI Crude Oil during the past twenty-one months, continued to trade at depressed levels during the quarter as well.  The depth and duration of the current energy cycle has been deeper and longer than many industry analysts originally expected.  This sustained downturn in crude oil and natural gas prices has had a substantial negative effect on a large number of energy-related companies, including a number of the Company’s customers, impacting our current financial performance and our credit metrics. 

At March 31, 2016, the Company’s loans to energy-related customers totaled approximately $1.6 billion, or 10% of its total loan portfolio.  Total criticized loans in the energy portfolio increased approximately $309 million in 2016 to $761 million, or approximately 47% of the total energy portfolio. Criticized loans are defined as those which are risk rated special mention, substandard or doubtful, and include both accruing and nonaccrual loans.  The linked-quarter increase in criticized loans was mainly driven by the application of new regulatory guidance which was used in the recent regulatory shared national credit (SNC) exam completed on March 15, 2016.  Approximately 75% of the increase in criticized energy loans was from reserve-based (RBL) credits identified in the SNC regulatory exam or based on the new regulatory guidance.  Several of the credits downgraded in the exam, totaling approximately $82 million, were moved to nonaccrual status.   Nonperforming energy loans totaled $159 million, up approximately $90 million from December 31, 2015. The prolonged decline in oil and gas prices from international economic and geopolitical events with no indication of a quick recovery, coupled with declining collateral values related to specific credits within the energy portfolio, led management to increase the allowance for the energy portfolio during the first three months of 2016 by $33 million to $111 million, or almost 7% of energy loans at March 31, 2016, up from approximately 5% at December 31, 2015.    At March 31, 2016, the total allowance for loan losses was $218 million compared to $181 million at December 31, 2015.  

Energy-related loans increased approximately $53 million between December 31, 2015 and March 31, 2016.  The linked-quarter- net increase in the energy portfolio included approximately $85 million in payoffs and paydowns and $17 million in charge-offs, offset by approximately $155 million in draws on existing lines. Management continues to work to reduce the Company’s overall concentration of energy-related credits by reducing the balance of energy-related credits while implementing a number of initiatives to increase its nonenergy-related portfolio.  At March 31, 2016, the Company has outstanding approximately $790 million in unfunded commitments to its energy-related customers.  The availability of these funds generally requires the borrower to meet credit standards, maintain collateral values established in the underlying contract and not be in violation of any other contractual conditions.

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The Company’s energy-related loan portfolio is diversified across a number of industries. It is comprised of loans to customers involved in both exploration and production and support services.  Approximately $1.0 billion, or 63%, of the energy portfolio is with customers who provide transportation and other onshore and offshore services and products to support exploration and production activities. The remaining $600 million, or 37%, is to customers engaged in oil and gas exploration and production, 90% of which is supported by proved developed producing reserves.  These customers are diversified across 12 primary basins in the U.S. and the Gulf of Mexico and by product line with approximately 60% in oil and 40% in gas. Borrowing base redeterminations for the RBL loans are completed twice a year and all borrowing bases will be reviewed and appropriately adjusted in the second and fourth quarters of 2016.  Management believes that RBL commitments, a portion of which are unfunded as discussed above, will be reduced approximately 15% – 20% in the second quarter redetermination due to continued low commodity prices.

Management continues to closely monitor the impact that the sustained decrease in oil prices will have on the ability of the Company’s energy-related customers to service their debt.  Part of the ongoing monitoring includes a review of customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics.  As new information becomes available, the Company could have additional risk rating downgrades.  Management believes that if further risk rating downgrades occur, they could lead to additional loan loss provisions, a higher allowance for loan losses, and additional charge-offs.  While management expects additional charge-offs in the portfolio, we continue to believe the impact of the energy cycle on the Company will be manageable and capital will remain solid.  Management estimates that net charge-offs from energy-related credits will approximate $65 to $95 million over the duration of the cycle.  During the first three months of 2016, the Company recorded net charge-offs of $17 million on energy-related credits.  For the cycle-to-date, the Company has recorded approximately $21 million in net charge-offs on energy-related credits.

Additionally, management is closely monitoring the impact that the depressed oil and gas prices are having on the local economies in the Company’s energy-dependent markets, particularly as it relates to our consumer and commercial real estate portfolios.  Although the Company has not experienced any significant issues in these portfolios, we could experience some credit degradation during 2016, particularly in the consumer portfolio, which may require an increase in our allowance for loan losses.

Current Economic Environment

The Federal Reserve publishes its Summary of Commentary on Current Economic Conditions (the “Beige Book”) eight times a year, most recently on April 13, 2016.  The Beige Book includes summaries from all 12 Banks in the Federal Reserve System.  Reports from the Atlanta Bank and the Dallas Bank indicate continued improvement of economic activity throughout most of Hancock’s market area. However, activity among energy-related businesses operating mainly in Hancock’s south Louisiana and Houston, Texas market areas continued to decline. Counterbalancing the effect of low prices in the energy sector, many segments of the economy were favorably impacted.  The travel and tourism industry, which is important within several of the Company’s market areas, saw an increase in activity with many hotels and resorts reporting high occupancy levels and an increase in consumer spending compared to prior year.  Outlooks for the next three months were favorable.  Auto sales continued to experience increases in sales activity.  Reports on manufacturing activity were mixed, with some areas reporting increases in production and others reporting declines in demand. 

The real estate markets for residential properties were mostly positive, with most brokers indicating that sales met or exceeded their expectations; however, Houston contacts noted some home price concessions being offered.  Most of Hancock’s market areas reported growth in real estate activity.  Inventory levels remained stable year-over-year.  Apartment demand was strong.  Outside of Houston, outlooks for the housing sector were positive, with brokers expecting to see an increase in sales over the next three months.  New home sales and construction activity are flat to slightly ahead of prior-year levels and expected to improve modestly.

The commercial real estate market continues to improve in most areas, with growing demand for office and industrial space in certain market areas.  Commercial construction activity has increased in these sectors.  Continued improvement is expected in the commercial real estate market. However, the Houston market is the exception to this positive outlook due to concerns about the energy sector.

Loan demand across most of the geographic markets that Hancock serves has remained relatively stable since the last Beige Book report, but competition for quality borrowers remains stiff. Consumer and business lending have increased in metropolitan areas, but decreased in rural areas.  The oil and gas industry loans continued to deteriorate due to the stress in the energy sector.  Business contacts indicated that although credit was available, activity tended to be focused on refinancing or paying down debt.

The overall U.S. economy continued to expand, with almost all regions showing modest to moderate growth rates.  Overall, outlooks remained positive, although confidence in the prospect of a higher rate of sustained growth decreased slightly in regions with more significant energy presence due to anticipated low oil prices for the foreseeable future.

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Highlights of First Quarter 2016 Financial Results

Net income in the first quarter of 2016 was $3.8 million, or $0.05 per diluted common share, compared to $15.3 million, or $0.19 per diluted common share, in the fourth quarter of 2015.  Net income was $40.2 million, or $0.49 per diluted common share, in the first quarter of 2015.  The linked-quarter decline in earnings was mainly related to an increase in the energy-related provision for loan and lease losses.  There were nonoperating expenses of $5.0 million (pre-tax), or $0.04 per share, in the first quarter of 2016 mainly related to separation pay.  There were no nonoperating items in the fourth quarter of 2015, and $7.0 million (pre-tax), or $0.06 per share, of nonoperating items in the first quarter of 2015.  The year-over-year decline in earnings was mainly related to a decrease in purchase accounting income of approximately $8.9 million (pre-tax), and the provision taken to increase the energy allowance noted above.  Pre-tax, pre-provision earnings, excluding the impact of purchase accounting adjustments related to the Peoples First and Whitney acquisitions and nonoperating items, were $76.4 million for the first quarter of 2016, an increase of $8.4 million, or 12%, from the fourth quarter of 2015 and an increase of $12.8 million, or 20%, from the first quarter of 2015.    

Highlights of the Company’s first quarter of 2016 results compared to the fourth quarter of 2015:

· Pre-tax, pre-provision income, excluding purchase accounting adjustments and nonoperating items, of $76.4 million, up $8.4 million, or 12%

· Total loans up $275 million, or 7%, linked-quarter annualized (“LQA”)

· Loan growth funded completely by deposit growth of $307 million, or 7% LQA

· Core net interest margin up 2 basis points (“bps”); up 4 bps excluding interest reversals

· Tangible common equity (“TCE”) ratio up 7 bps to 7.69%

· Allowance for the energy portfolio increased $33 million, to $111 million, or almost 7% of energy loans

The total allowance for loan losses was $217.8 million at March 31, 2016, up $36.6 million from December 31, 2015.  The ratio of the allowance for loan losses to period-end loans was 1.36% at March 31, 2016, up from 1.15% at December 31, 2015.  The allowance maintained on the non-FDIC acquired portion of the loan portfolio increased $39.2 million linked-quarter, totaling $197.3 million, while the allowance on the FDIC acquired loan portfolio decreased $2.6 million linked-quarter. 

The increase in the non-FDIC portion of the allowance was primarily driven by an increase of approximately $33 million in the reserve related to the energy portfolio.  As previously noted, this increase was mainly related to an increased level of criticized loans from the application of new regulatory risk-rating guidance which was used in the recent shared national credit review completed on March 15, 2016.  

RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the first quarter of 2016 was $168.2 million, up $5.6 million, or 3%, from the fourth quarter of 2015 primarily from average earning asset growth. Average earning assets were $20.9 billion for the first quarter of 2016, up $770 million, or 4%, from the fourth quarter of 2015. Core net interest income also increased $5.6 million linked-quarter, as the impact on net interest income from net purchase accounting accretion related to the Peoples First and Whitney acquisitions was virtually unchanged.  For analytical purposes, management adjusts net interest income to a taxable equivalent basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

Net interest income (te) for the first quarter of 2016 increased $7.1 million, or 4%, compared to the first quarter of 2015. Additional net interest income earned on a $2.6 billion increase in average earning assets was partially offset by a $9.6 million reduction in net  purchase accounting accretion.

The reported net interest margin was 3.23% for the first quarter of 2016, up 2 bps from the fourth quarter of 2015, but down 32 bps from the first quarter of 2015.  The impact of net purchase accounting accretion was 11 bps in both the first quarter of 2016 and the fourth quarter of 2015. Included in the first quarter of 2016 results is approximately $0.9 million of reversals of accrued interest, mainly from loans being placed on nonaccrual as a result of the March 2016 SNC exam,  that reduced the net interest margin by 2 bps. The first quarter of 2016 core net interest margin of 3.12% was 2 bps higher than fourth quarter 2015 driven by a 5 bps increase in the loan yield, excluding net purchase accounting accretion, and a 6 bps increase in the yield on securities. Compared to the first quarter of 2015, the core net interest margin decreased 9 bps primarily due to a 10 bps increase in the cost of funds. 

The overall reported yield on earning assets was 3.57% in the first quarter of 2016, up 4 bps from the fourth quarter of 2015 and down 22 bps from the first quarter of 2015. The linked-quarter increase was a result of a 6 bps increase in investment portfolio yields due to

43

a change in mix toward higher yielding municipal securities and a 4 bps increase in loan yields.  The 22 bps decrease from first quarter 2015 was primarily a result of the lower yields on the loan portfolio due mostly to the impact of the decline in net purchase accounting accretion. 

The cost of funding earning assets was up 3 bps from the fourth quarter of 2015 and up 10 bps from the first quarter of 2015.  The increase from the first quarter of 2015 was primarily attributable to a 15 bps increase in deposit rates related to the Company’s deposit initiatives and a 62 bps increase in long-term debt costs as a result of the $150 million subordinated debt issuance in the first quarter of 2015 at a cost of 5.95%.

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

	Three Months Ended
	March 31, 2016						December 31, 2015						March 31, 2015
(dollars in millions)	Volume		Interest		Rate		Volume		Interest		Rate		Volume		Interest		Rate
Average earning assets
Commercial & real estate   loans (te) (a) (b)	$	11,713.2	$	111.7	3.83	%	$	11,128.8	$	106.2	3.79	%	$	10,235.2	$	106.8		4.23	%
Residential mortgage loans		2,058.5		21.3	4.13			2,028.7		20.6	4.07			1,902.9		20.4		4.30
Consumer loans		2,077.1		26.3	5.10			2,040.7		25.9	5.03			1,731.3		21.9		5.13
Loan fees & late charges				(0.8)						(0.5)						0.3
Total loans (te)		15,848.8		158.5	4.02			15,198.2		152.2	3.98			13,869.4		149.4		4.36
Loans held for sale		14.8		0.2	4.28			16.7		0.2	4.40			15.6		0.1		2.45
US Treasury and government agency securities		50.1		0.2	1.67			50.0		0.2	1.68			275.0		1.1		1.58
Mortgage-backed securities and collateralized mortgage obligations		4,132.8		22.9	2.21			4,219.1		23.3	2.20			3,290.5		18.6		2.26
Municipals (te) (a)		339.1		3.6	4.27			205.8		2.3	4.45			195.8		2.3		4.61
Other securities		6.1		—	1.85			6.1		—	1.80			11.6		0.1		4.47
Total securities (te) (c)		4,528.1		26.7	2.36			4,481.0		25.8	2.30			3,772.9		22.1		2.35
Total short-term investments		519.0		0.6	0.47			444.5		0.3	0.30			657.9		0.4		0.22
Total earning assets (te)	$	20,910.7	$	186.0	3.57	%	$	20,140.4	$	178.5	3.53	%	$	18,315.8	$	172.0		3.79	%
Average interest-bearing liabilities
Interest-bearing transaction  and savings deposits	$	6,815.7	$	4.7	0.28	%	$	7,065.3	$	4.4	0.25	%	$	6,506.8	$	2.2		0.14	%
Time deposits		2,258.9		4.9	0.88			2,212.7		4.3	0.76			2,238.8		3.7		0.67
Public funds		2,173.5		2.1	0.38			1,834.3		1.5	0.32			1,815.4		1.2		0.27
Total interest-bearing deposits		11,248.1		11.7	0.42			11,112.3		10.2	0.36			10,561.0		7.1		0.27
Short-term borrowings		1,564.8		1.0	0.26			1,229.6		0.4	0.14			920.5		0.2		0.08
Long-term debt		483.3		5.1	4.20			490.8		5.3	4.26			411.1		3.6		3.58
Total borrowings		2,048.1		6.1	1.19			1,720.4		5.7	1.32			1,331.6		3.8		1.16
Total interest-bearing liabilities		13,296.2		17.8	0.54	%		12,832.7		15.9	0.49	%		11,892.6		10.9		0.37	%
Net interest-free funding sources		7,614.5						7,307.7						6,423.2
Total cost of funds	$	20,910.7	$	17.8	0.34	%	$	20,140.4	$	15.9	0.31	%	$	18,315.8	$	10.9		0.24	%
Net interest spread (te)			$	168.2	3.03	%			$	162.6	3.03	%			$	161.1		3.42	%
Net interest margin	$	20,910.7	$	168.2	3.23	%	$	20,140.4	$	162.6	3.21	%	$	18,315.8	$	161.1		3.55	%

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

(b) Includes nonaccrual loans.

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

44

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

Reconciliation of Reported Net Interest Income and Margin to Core Net Interest Income and Margin

	Three Months Ended
	March 31,			December 31,			March 31,
(dollars in millions)	2016			2015			2015
Net interest income (te) (a)	$	168.2		$	162.6		$	161.1
Purchase accounting adjustments
Loan discount accretion		6.4			6.5			16.4
Bond premium amortization		(0.7)			(0.8)			(1.1)
Net purchase accounting accretion		5.7			5.7			15.3
Net interest income (te) - core	$	162.5		$	156.9		$	145.8
Average earning assets	$	20,910.7		$	20,140.4		$	18,315.8
Net interest margin - reported		3.23	%		3.21	%		3.55	%
Net purchase accounting adjustments		0.11	%		0.11	%		0.34	%
Net interest margin - core		3.12	%		3.10	%		3.21	%

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

Provision for Loan Losses

During the first quarter of 2016, the Company recorded a total provision for loan losses of $60.0 million, up $9.8 million from the fourth quarter of 2015 and up $53.9 million from the first quarter of 2015.  Both the linked-quarter and prior year increases reflect an increase in the provision related to the energy portfolio as discussed more fully in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Loan Losses and Asset Quality.”  The provision for the FDIC acquired portfolio was a credit of $0.5 million for the three months ended March 31, 2016, compared to a credit of $0.1 million for the same period prior year.  For the three months ended December 31, 2015, the provision for the FDIC acquired portfolio was a credit of $1.7 million.  The credits to provision in both years for the FDIC acquired portfolio were primarily due to reductions in expected losses. 

The section in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Loan Losses and Asset Quality” provides additional information on changes in the allowance for loan losses and general credit quality.  Certain differences in the determination of the allowance for loan losses for originated loans and for acquired-performing loans and acquired-impaired loans (which includes all FDIC acquired loans) are described in Note 3 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Noninterest Income

Noninterest income totaled $58.2 million for the first quarter of 2016, down $1.5 million, or 2% from the fourth quarter of 2015. A $1.6 million gain from the sale of approximately $52 million of residential mortgage loans was offset by decreases in services charges and bank card and ATM fees, as well as a decline in income from derivatives.  Compared to the first quarter of 2015, noninterest income was up $1.6 million, or 3%.  The gain from the mortgage loan sale and a $1.1 million, or 6%, increase in service charges on deposit accounts were partially offset by a $0.4 million increase in amortization of the FDIC indemnification asset and a decrease in insurance commissions and fees.

45

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

	Three Months Ended
	March 31,		December 31,		March 31,
(in thousands)	2016		2015		2015
Service charges on deposit accounts	$	18,383	$	18,971	$	17,315
Trust fees		11,224		11,287		11,200
Bank card and ATM fees		11,348		11,792		11,183
Investment and annuity fees		4,933		4,632		5,050
Secondary mortgage market operations		2,912		2,884		2,664
Insurance commissions and fees		1,307		1,980		1,754
Amortization of FDIC loss share receivable		(1,613)		(1,713)		(1,197)
Income from bank-owned life insurance		2,550		3,093		2,666
Credit related fees		2,357		3,271		2,457
Gain (loss) from derivatives		(139)		1,259		(52)
Gain (loss) on sale of assets		2,111		(179)		340
Safety deposit box income		478		402		486
Other miscellaneous		2,335		1,974		2,680
Total noninterest income	$	58,186	$	59,653	$	56,546

Service charges on deposits totaled $18.4 million for the first quarter of 2016, down $0.6 million, or 3%, from the fourth quarter of 2015, but up $1.1 million, or 6%, from the first quarter of 2015. The linked-quarter decrease is due to normal seasonal variations in overdraft occurrences. The increase from the first quarter of 2015 was due to increases in both fees from commercial products and in consumer overdraft fees.

Bank card and ATM fees totaled $11.3 million for the quarter ended March 31, 2016, down $0.4 million, or 4%, from the fourth quarter of 2015, primarily due to seasonality.  Compared to the same period a year ago, bank card and ATM fees were up $0.2 million, or 1%.

Secondary mortgage market operations fee income increased slightly from the fourth quarter of 2015, and was up $0.2 million, or 9% compared to the first quarter of 2015. The increase is mainly related to the addition of several new mortgage originators hired in the fourth quarter of 2015 and first quarter of 2016.   

Insurance commissions and fees totaled $1.3 million in the first quarter of 2016, down $0.7 million linked-quarter and down $0.4 million compared to the first quarter of 2015.  In the third quarter of 2015, the Company elected to exit its title insurance operation to focus on more profitable areas. The title insurance operation contributed approximately $1 million in fee income annually.

Amortization of the FDIC loss share receivable totaled $1.6 million in the first quarter of 2016 compared to $1.7 million in the fourth quarter of 2015 and $1.2 million in the first quarter of 2015.  The increase in amortization from the first quarter of 2015 reflects a reduction in the amount of expected reimbursements under the loss share agreements due to lower loss projections for the related FDIC acquired loan pools. 

Income from bank-owned life insurance was down $0.5 million, or 18%, linked quarter as the fourth quarter of 2015 included a mortality benefit.

Market valuations on our customer interest rate derivative program resulted in a $0.1 million loss for the first quarter of 2016 compared to a $1.3 million gain in the fourth quarter of 2015 and a slight lossin the first quarter of 2015.  This income is volatile in nature and is dependent upon both customer sales activity and market value adjustments due to interest rate movement. 

Noninterest Expense

Noninterest expense for the first quarter of 2016 was $156.0 million, unchanged from the fourth quarter of 2015, and up $2.5 million, or 2%, from the first quarter of 2015.  Excluding nonoperating expense items, operating expense for the first quarter of 2016 totaled $151.1 million, a $5.0 million, or 3%, decrease from the fourth quarter of 2015 and a $4.9 million, or 3%, increase from the same period in 2015.   

Nonoperating expenses were $5.0 million in the first quarter of 2016, none in the fourth quarter of 2015 and $7.3 million in the first quarter of 2015. Nonoperating expenses for the first quarter of 2016 were almost all related to separation costs included in personnel expenses due to an efficiency initiative and technology enhancements.  The nonoperating expenses in the first quarter of 2015 were all related to the Company’s expense and efficiency initiative. The following discussion of the components of noninterest expenses excludes nonoperating expenses for each period.

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Personnel expense totaled $84.7 million for the first quarter of 2016, down $0.6 million, or 1%, from the fourth quarter of 2015, and up $4.6 million, or 6%, compared to the first quarter of 2015.  There were 3,819 full-time equivalent employees as of March 31, 2016, over 100 fewer than at year-end, but up slightly from March 31, 2015.

Occupancy and equipment expenses totaled $14.1 million for the first quarter of 2016, down $0.4 million, or 3%, from the fourth quarter of 2015 and $1.0 million, or 6%, from the first quarter of 2015. 

Other real estate (“ORE”) expense in the first quarter of 2016was $0.4 million, less than half of the $1.4 million in ORE expense in the fourth quarter of 2015, which included two large valuation write-downs. ORE was relatively flat compared to the first quarter of 2015.

All other expenses, excluding amortization of intangibles and nonoperating expense items, totaled $46.6 million for the first quarter of 2016, a $2.5 million, or 5%, decrease from the fourth quarter of 2015.  Decreases in advertising of $1.7 million and professional services expense of $0.8 million were partially offset by an increase in deposit insurance and regulatory fees due mainly to asset growth and an increased level of criticized assets.

All other expenses compared to the first quarter of 2015 were up $2.4 million, or 5%, due primarily to a $1.8 million, or 50%, increase in deposit insurance and regulatory fees.

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

	Three Months Ended
	March 31,		December 31,		March 31,
(in thousands)	2016		2015		2015
Operating expense
Compensation expense	$	69,438	$	71,907	$	64,547
Employee benefits		15,303		13,408		15,570
Personnel expense		84,741		85,315		80,117
Net occupancy expense		10,356		10,639		11,162
Equipment expense		3,774		3,871		3,933
Data processing expense		14,207		14,178		13,536
Professional services expense		7,440		8,220		6,320
Amortization of intangibles		5,124		5,691		6,318
Telecommunications and postage		3,361		3,520		3,651
Deposit insurance and regulatory fees		5,397		4,703		3,595
Other real estate expense, net		445		1,361		456
Advertising		2,357		4,071		2,157
Ad valorem and franchise taxes		2,303		2,179		2,715
Printing and supplies		1,111		1,283		1,217
Insurance expense		835		838		922
Travel expense		949		1,385		1,219
Entertainment and contributions		1,632		1,714		1,639
Tax credit investment amortization		1,743		2,161		2,095
Other miscellaneous		5,279		4,901		5,149
Total operating expense	$	151,054	$	156,030	$	146,201
Nonoperating expense items		4,978		—		7,314
Total noninterest expense	$	156,032	$	156,030	$	153,515

Income Taxes

The effective income tax rate for the first quarter of 2016 was approximately 23%.  Management expects the effective tax rate for the remainder of 2016 will approximate 22% to 24%.  The Company’s effective tax rate varies from the 35% federal statutory rate primarily because of tax-exempt income and the use of tax credits.  Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the bank-owned life insurance program are the major components of tax-exempt income.  The main source of tax credits has been investments in tax-advantaged securities and tax credit projects.  These investments are made primarily in the markets the Company serves and are directed at tax credits issued under the Qualified Zone Academy Bonds (“QZAB”), Qualified School Construction Bonds (“QSCB”), Federal and State New Market Tax Credit (“NMTC”) and Low-Income Housing Tax Credit (“LIHTC”) programs. The investments generate tax credits, which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. 

47

During 2008, 2011 and 2013, the Company’s Community Development Entity (CDE) was awarded three federal NMTC allocations totaling $148 million.  In addition to investing in federal and state NMTC projects through its own CDE, the Company has invested in projects in other unrelated CDEs.  Since 2008, the Company has invested in NMTC projects generating approximately $101 million in federal and state tax credits.  Federal tax credits from NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three to five years.

The Company intends to continue making investments in tax credit projects and qualified bonds.  However, its ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits.  Based on tax credit investments that have been made to date, the Company expects to realize benefits from federal and state tax credits over the next three years totaling $9.0 million, $7.5 million and $5.7 million for 2017, 2018, and 2019, respectively.

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

	Three Months Ended
	March 31,		December 31,		March 31,
(in thousands)	2016		2015		2015
Taxes computed at statutory rate	$	1,734	$	4,138	$	19,262
Tax credits:
QZAB/QSCB		(697)		(792)		(730)
NMTC - Federal and State		(1,830)		(2,442)		(2,573)
LIHTC		(12)		(56)		(24)
Other tax credits		—		(110)		—
Total tax credits		(2,539)		(3,400)		(3,327)
State income taxes, net of federal income tax benefit		293		214		728
Tax-exempt interest		(3,053)		(2,448)		(1,710)
Bank owned life insurance		(890)		(1,073)		(919)
Impact from interim estimated effective tax rate		5,382		(858)		653
Other, net		188		(58)		189
Income tax expense	$	1,115	$	(3,485)	$	14,876

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

48

Selected Financial Data

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

	Three Months Ended
	March 31,		December 31,		March 31,
	2016		2015		2015
Common Share Data
Earnings per share:
Basic	$	0.05	$	0.19	$	0.49
Diluted	$	0.05	$	0.19	$	0.49
Operating earnings per share: (a)
Basic	$	0.09	$	0.19	$	0.55
Diluted	$	0.09	$	0.19	$	0.55
Cash dividends paid	$	0.24	$	0.24	$	0.24
Book value per share (period-end)	$	31.24	$	31.14	$	31.14
Tangible book value per share (period-end)	$	21.90	$	21.74	$	21.55
Weighted average number of shares (000s):
Basic		77,501		77,440		79,496
Diluted		77,672		77,544		79,661
Period-end number of shares (000s)		77,508		77,496		77,886
Market data:
High sales price	$	25.84	$	30.96	$	31.13
Low sales price	$	20.01	$	23.35	$	24.96
Period-end closing price	$	22.96	$	25.17	$	29.86
Trading volume (000s) (b)		56,319		48,789		51,866

(a) Net income less tax-effected nonoperating items.  Management believes that operating income provides a useful measure of financial performance that helps investors compare the Company's fundamental operations over time.

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

49

	Three Months Ended
	March 31,		December 31,		March 31,
(in thousands)	2016		2015		2015
Income Statement:
Interest income	$	180,641	$	174,310	$	169,087
Interest income (te) (a)		185,984		178,550		172,043
Interest expense		17,805		15,915		10,929
Net interest income (te)		168,179		162,635		161,114
Provision for loan losses		60,036		50,196		6,154
Noninterest income		58,186		59,653		56,546
Noninterest expense (excluding amortization of intangibles)		150,908		150,339		147,197
Amortization of intangibles		5,124		5,691		6,318
Income before income taxes		4,954		11,822		55,035
Income tax expense (benefit)		1,115		(3,485)		14,876
Net income	$	3,839	$	15,307	$	40,159
Total nonoperating items		4,978		—		6,981
Taxes on adjustments at marginal tax rate		1,742		—		2,443
Total adjustments, net of taxes		3,236		—		4,538
Operating income (b)	$	7,075	$	15,307	$	44,697
Difference between interest income and interest income (te)	$	5,343	$	4,240	$	2,956
Provision for loan losses		60,036		50,196		6,154
Income tax expense (benefit)		1,115		(3,485)		14,876
Pre-tax, pre-provision profit (PTPP) (te) (c)	$	70,333	$	66,258	$	64,145

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

(b) Net income less tax-effected nonoperating items. Management believes that operating income provides a useful measure of financial performance that helps investors compare the Company’s fundamental operations over time.

(c) Net interest income (te) and noninterest income less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover the losses through a credit cycle.

50

	Three Months Ended
	March 31,		December 31,		March 31,
(in thousands)	2016		2015		2015
Performance Ratios
Return on average assets	0.07	%	0.27	%	0.80	%
Return on average assets - operating (a)	0.12	%	0.27	%	0.89	%
Return on average common equity	0.64	%	2.48	%	6.65	%
Return on average common equity - operating (a)	1.17	%	2.48	%	7.41	%
Return on average tangible common equity	0.91	%	3.53	%	9.60	%
Return on average tangible common equity - operating (a)	1.67	%	3.53	%	10.68	%
Earning asset yield (te)	3.57	%	3.53	%	3.79	%
Total cost of funds	0.34	%	0.31	%	0.24	%
Net interest margin (te)	3.23	%	3.21	%	3.55	%
Core net interest margin (b)	3.12	%	3.10	%	3.21	%
Noninterest income to total revenue (te)	25.70	%	26.84	%	25.98	%
Efficiency ratio (c)	64.47	%	67.63	%	64.36	%
Average loan/deposit ratio	86.69	%	85.28	%	84.13	%
FTE employees (period-end)	3,819		3,921		3,785
Capital Ratios
Common stockholders' equity to total assets	10.61	%	10.57	%	11.70	%
Tangible common equity ratio	7.69	%	7.62	%	8.40	%

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

(b) Reported taxable equivalent (te) net interest income, excluding net purchase accounting adjustments, expressed as a percentage of earning assets.

(c) Noninterest expense as a percent of total revenue (te) before amortization of purchased intangibles and nonoperating expense items.

51

	Three Months Ended
	March 31,			December 31,			March 31,
(in thousands)	2016			2015			2015
Asset Quality Information
Nonaccrual loans (a)	$	237,303		$	159,713		$	90,821
Restructured loans - still accruing		45,620			4,297			7,564
Total nonperforming loans		282,923			164,010			98,385
Other real estate (“ORE”) and foreclosed assets		24,032			27,133			42,956
Total nonperforming assets	$	306,955		$	191,143		$	141,341
Accruing loans 90 days past due (a)	$	9,226		$	7,653		$	5,872
Net charge-offs - non-FDIC acquired		21,299			7,877			3,654
Net charge-offs - FDIC acquired		(67)			(100)			2,455
Allowance for loan losses		217,794			181,179			128,386
Provision for loan losses		60,036			50,196			6,154
Ratios:
Nonperforming assets to loans, ORE and foreclosed assets		1.92	%		1.22	%		1.01	%
Accruing loans 90 days past due to loans		0.06	%		0.05	%		0.04	%
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets		1.98	%		1.26	%		1.05	%
Net charge-offs - non-FDIC acquired to average loans		0.54	%		0.21	%		0.11	%
Allowance for loan losses to period-end loans		1.36	%		1.15	%		0.92	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due		74.55	%		105.54	%		123.14	%

(a) Nonaccrual loans and accruing loans past due 90 days or more do not include acquired-impaired loans with an accretable yield. Included in nonaccrual loans are $18.3 million, $8.8 million, and $5.0 million in restructured loans at March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

52

Supplemental Asset Quality Information	Originated		Acquired  (a)		FDIC acquired (b)		Total
(in thousands)	March 31, 2016
Nonaccrual loans (c)	$	234,395	$	2,908	$	—	$	237,303
Restructured loans - still accruing		45,620		—		—		45,620
Total nonperforming loans		280,015		2,908		—		282,923
ORE and foreclosed assets (d)		16,403		—		7,629		24,032
Total nonperforming assets	$	296,418	$	2,908	$	7,629	$	306,955
Accruing loans 90 days past due	$	9,226	$	—	$	—	$	9,226
Allowance for loan losses	$	197,285	$	7	$	20,502	$	217,794
	December 31, 2015
Nonaccrual loans (c)	$	156,721	$	2,992	$	—	$	159,713
Restructured loans - still accruing		4,297		—		—		4,297
Total nonperforming loans		161,018		2,992		—		164,010
ORE and foreclosed assets (d)		18,580		—		8,553		27,133
Total nonperforming assets	$	179,598	$	2,992	$	8,553	$	191,143
Accruing loans 90 days past due	$	7,653	$	—	$	—	$	7,653
Allowance for loan losses	$	158,026	$	33	$	23,120	$	181,179

Loans Outstanding	Originated		Acquired  (a)		FDIC acquired (b)		Total
(in thousands)	March 31, 2016
Commercial non-real estate loans	$	7,088,146	$	51,949	$	5,311	$	7,145,406
Construction and land development loans		1,086,382		2,250		6,782		1,095,414
Commercial real estate loans		3,504,803		156,285		15,004		3,676,092
Residential mortgage loans		1,839,889		1,116		159,962		2,000,967
Consumer loans		2,048,068		20		12,157		2,060,245
Total loans	$	15,567,288	$	211,620	$	199,216	$	15,978,124
Change in loan balance from previous quarter	$	308,701	$	(29,810)	$	(4,081)	$	274,810
	December 31, 2015
Commercial non-real estate loans	$	6,930,453	$	59,843	$	5,528	$	6,995,824
Construction and land development loans		1,139,743		5,080		7,127		1,151,950
Commercial real estate loans		3,220,509		176,460		15,582		3,412,551
Residential mortgage loans		1,887,256		27		162,241		2,049,524
Consumer loans		2,080,626		20		12,819		2,093,465
Total loans	$	15,258,587	$	241,430	$	203,297	$	15,703,314
Change in loan balance from previous quarter	$	1,180,400	$	(228,589)	$	(11,547)	$	940,264

(a) Loans which have been acquired and no allowance brought forward in accordance with acquisition accounting. Acquired-performing loans in pools with fully accreted purchase fair value discounts are reported as originated loans, resulting in changes in classification between periods.

(b) Loans acquired in an FDIC-assisted transaction. Non-single family loss share agreement expired on December 31, 2014. As of March 31, 2016, $168.1 million in loans and $1.1 million in ORE remain covered by the FDIC single family loss share agreement, providing considerable protection against credit risk. As of December 31, 2015, $170.1 million in loans and $1.7 million in ORE remained covered by the FDIC single family loss share agreement.

(c) Included in nonaccrual loans are $18.3 millionand $8.8 million of nonaccruing restructured loans at March 31, 2016 and December 31, 2015, respectively.

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

53

	Three Months Ended
	March 31,		December 31,		March 31,
(in thousands)	2016		2015		2015
Period-End Balance Sheet
Total loans, net of unearned income (a)	$	15,978,124	$	15,703,314	$	13,924,386
Loans held for sale		24,001		20,434		19,950
Securities		4,667,837		4,463,792		4,107,904
Short-term investments		151,551		565,555		515,797
Earning assets		20,821,513		20,753,095		18,568,037
Allowance for loan losses		(217,794)		(181,179)		(128,386)
Goodwill		621,193		621,193		621,193
Other intangible assets, net		102,414		107,538		125,404
Other assets (c)		1,482,044		1,532,958		1,532,491
Total assets	$	22,809,370	$	22,833,605	$	20,718,739
Noninterest-bearing deposits	$	7,108,598	$	7,276,127	$	6,201,403
Interest-bearing transaction and savings deposits		7,043,484		6,767,881		6,576,658
Interest-bearing public funds deposits		2,152,903		2,253,645		1,828,559
Time deposits		2,351,165		2,051,259		2,253,865
Total interest-bearing deposits		11,547,552		11,072,785		10,659,082
Total deposits		18,656,150		18,348,912		16,860,485
Short-term borrowings		1,100,787		1,423,644		755,250
Long-term debt (c)		471,245		490,145		510,235
Other liabilities		160,148		157,761		167,671
Stockholders' equity		2,421,040		2,413,143		2,425,098
Total liabilities & stockholders' equity	$	22,809,370	$	22,833,605	$	20,718,739

	Three Months Ended
	March 31,		December 31,		March 31,
(in thousands)	2016		2015		2015
Average Balance Sheet
Total loans, net of unearned income (a)	$	15,848,770	$	15,198,232	$	13,869,397
Loans held for sale		14,822		16,717		15,567
Securities (b)		4,528,090		4,480,972		3,772,997
Short-term investments		518,986		444,511		657,878
Earning assets		20,910,668		20,140,432		18,315,839
Allowance for loan losses		(183,264)		(140,798)		(130,217)
Goodwill and other intangible assets		726,094		731,414		750,705
Other assets (c)		1,479,017		1,440,168		1,505,648
Total assets	$	22,932,515	$	22,171,216	$	20,441,975
Noninterest-bearing deposits	$	7,033,680	$	6,709,188	$	5,924,196
Interest-bearing transaction and savings deposits		6,815,703		7,065,338		6,506,812
Interest-bearing public fund deposits		2,173,435		1,834,302		1,815,445
Time deposits		2,258,936		2,212,656		2,238,806
Total interest-bearing deposits		11,248,074		11,112,296		10,561,063
Total deposits		18,281,754		17,821,484		16,485,259
Short-term borrowings		1,564,804		1,229,603		920,436
Long-term debt (c)		483,348		490,761		411,054
Other liabilities		170,862		175,888		177,356
Stockholders' equity		2,431,747		2,453,480		2,447,870
Total liabilities & stockholders' equity	$	22,932,515	$	22,171,216	$	20,441,975

(a) Includes nonaccrual loans.

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

(c) Prior period has been restated to reclassify debt issuance costs from other assets to net against the related debt.

54

LIQUIDITY

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

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, as well as maturities and repayments of investment securities.  Short-term investments such as federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional sources of liquidity to meet cash flow requirements.  Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window.  As shown in the table below, our ratio of free securities to total securities was 25.47% at March 31, 2016, compared to 20.29% at December 31, 2015 and 27.06% at March 31, 2015.  The increase compared to year-end was due in part to the reduction in securities required to collateralize seasonal public funds deposits and repurchase agreements as well as the overall increase in the investment securities portfolio.

	March 31,		December 31,		September 30,		June 30,		March 31,
Liquidity Metrics	2016		2015		2015		2015		2015
Free securities / total securities	25.47	%	20.29	%	33.68	%	27.37	%	27.06	%
Core deposits / total deposits	92.95	%	94.90	%	93.50	%	93.56	%	93.08	%
Wholesale funds / core deposits	9.07	%	10.99	%	9.48	%	9.80	%	8.10	%
Quarter-to-date average loans /quarter-to-date average deposits	86.69	%	85.28	%	83.82	%	83.85	%	84.13	%

The liability portion of the balance sheet provides liquidity mainly through the Company’s ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit and sweep accounts.  Core deposits consist of total deposits less certificates of deposits (“CDs”) of $250,000 or more, brokered deposits, and balances in sweep time deposit products used by commercial customers. The ratio of core deposits to total deposits was a healthy 92.95% at March 31, 2016, down 195 bps compared to December 31, 2015 and down 13 bps from March 31, 2015.  Brokered deposits totaled $731 million as of March 31, 2016, a $369 million increase from December 31, 2015, and up $468 million compared to at March 31, 2015. The Company’s use of brokered deposits as a funding source is subject to very strict parameters regarding the term and interest rate. The impact of increased brokered deposits on the core deposit ratio was partially offset by the movement of balances out of the Company’s overnight Eurodollar treasury management product into other deposit categories. The Company discontinued offering the Eurodollar deposit product in the fourth quarter of 2015.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, our short-term borrowing capacity includes an approved line of credit with the FHLB of $3.0 billion and borrowing capacity at the Federal Reserve’s discount window of $1.7 billion at March 31, 2016.  Wholesale funds, which are comprised of short-term borrowings and long-term debt, were 9.07% of core deposits at March 31, 2016, compared to 10.99% at December 31, 2015 and 8.10% at March 31, 2015.  The decrease from December 31, 2015 primarily reflects a $225 million decrease in borrowings from the FHLB to $675 million at March 31, 2016.  FHLB borrowings totaled $200 million at March 31, 2015.  No amounts had been borrowed at the Federal Reserve’s discount window in any period. See the discussion on “Balance Sheet Analysis - Deposits” for more information.

Another key measure the Company uses to monitor its liquidity position is the 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 out for each dollar of deposits on hand.  The Company’s loan-to-deposit ratio for the first quarter of 2016was 86.69%, a141 bps increase from the fourth quarter of 2015, and up 256 bps from March 31,  2015.  The Company has established an internal target range for the loan-to-deposit ratio from 83% to 87%.

Cash generated from operations is another important source of funds to meet liquidity needs.  The consolidated statements of cash flows present operating cash flows and summarize all significant sources and uses of funds for the three months ended March 31, 2016 and 2015. 

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

55

CAPITAL RESOURCES

Stockholders’ equity totaled $2.4 billion at March 31, 2016, virtually flat compared to both December 31, 2015 and March 31, 2015.  Depressed earnings resulting from the energy-related provision expense discussed previously kept capital level near the year-end amount.  Compared to a year earlier, the common stock buyback program discussed below also contributed to the lack of growth in capital levels. The tangible common equity ratio of 7.69% at March 31, 2016 was up 7 bps from December 31, 2015. This ratio was 8.40% at March 31, 2015 with the decline primarily due to $2.1 billion in asset growth.  The Company has established an internal target for the tangible common equity ratio of at least 8.00%. However, management will allow the Company’s tangible common equity ratio to drop below 8.00% on a temporary basis if it believes that the shortfall can be replenished through normal operations.

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

At March 31, 2016, the regulatory capital ratios of the Company and the Bank were well in excess of current regulatory minimum requirements, as indicated in the table below.  The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators and both currently exceed all capital requirements of the new rule, including the fully phased-in conservation buffer.

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

	March 31,		December 31,		September 30,		June 30,		March 31,
	2016		2015		2015		2015		2015
Total capital (to risk weighted assets)
Hancock Holding Company	11.75	%	11.86	%	12.32	%	12.53	%	12.77	%
Whitney Bank	11.56	%	11.73	%	12.04	%	12.04	%	12.17	%
Tier 1 common equity capital (to risk weighted assets)
Hancock Holding Company	9.69	%	9.96	%	10.56	%	10.77	%	10.86	%
Whitney Bank	10.30	%	10.64	%	11.13	%	11.16	%	11.16	%
Tier 1 capital (to risk weighted assets)
Hancock Holding Company	9.69	%	9.96	%	10.56	%	10.77	%	10.86	%
Whitney Bank	10.30	%	10.64	%	11.13	%	11.16	%	11.16	%
Tier 1 leverage capital
Hancock Holding Company	8.14	%	8.55	%	8.85	%	9.07	%	9.17	%
Whitney Bank	8.68	%	9.16	%	9.36	%	9.42	%	9.45	%

Regulatory definitions:

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

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

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

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

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

56

BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $4.7 billion at March 31, 2016, up $204 million from December 31, 2015 and $560 million from March 31, 2015.  During the first quarter of 2016, the Company purchased approximately $370 million of mortgage-backed securities and municipal securities at an average yield of 3.45%.  At March 31, 2016, securities available for sale totaled $2.2 billion and securities held to maturity totaled $2.5 billion. 

The securities portfolio consists mainly of residential mortgage-backed securities and collateralized mortgage obligations issued or guaranteed by U.S. government agencies.  The portfolio is designed to enhance liquidity while providing an acceptable rate of return.  The Company invests only in high quality securities of investment grade quality with a targeted duration for the overall portfolio of between two and five.  At March 31, 2016, the average maturity of the portfolio was 5.01 years with an effective duration of 3.69 and a weighted-average yield of 2.43%. The effective duration increases, under management scenarios, to 4.30 with a 100 bps increase in the yield curve and to 4.52 with a 200 bps increase.  At December 31, 2015, the average maturity of the portfolio was 4.90 years with an effective duration of 3.89 and a weighted-average yield of 2.33%.  The 6 bps increase in the weighted average security portfolio yield between December 31, 2015 and March 31, 2016 is primarily the result of an improved mix with an increase in the amount of higher yielding municipal securities in the portfolio.

Loans

Total loans at March 31, 2016 were $16.0 billion, up $275 million, or 2%, compared to December 31, 2015, and up $2.1 billion, or 15%, compared to March 31, 2015.  All regions across the footprint reported net loan growth during the first quarter of 2016.  See Note 3 to the consolidated financial statements for the composition of originated, acquired and FDIC acquired loans at March 31, 2016 and December 31, 2015.

Management expects continued growth across the footprint will be slightly offset by ongoing payoffs and paydowns in the energy portfolio.   This is expected to result in year over year period-end loan growth of 5% – 7% in 2016.

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

At March 31, 2016, loans in the energy sector, which is comprised of credits to both the exploration and production segment and the support services segment, totaled $1.6 billion, or 10% of total loans.  The energy portfolio reflected a net increase of approximately $53 million linked-quarter, which includes approximately $85 million in payoffs and paydowns, and $17 million in energy charge-offs, offset by approximately $155 million in draws on existing lines. 

The Bank lends mainly to middle-market and smaller commercial entities, although it participates in larger shared-credit loan facilities.Shared national credits funded at March 31, 2016 totaling approximately $2.2 billion, or 14% of total loans, were upapproximately $180 million from December 31, 2015 and up $380 million from March 31, 2015.  Approximately $975 million of shared national credits were with energy-related customers at March 31, 2016,  down approximately $25 million from both December 31, 2015 and March 31, 2015.  

Commercial non-real estate loans, construction and land development loans, and commercial real estate loans increased $357 million over the first three months of 2016.  Commercial real estate loans include approximately $1.8 billion in loans on income-producing properties, up approximately $200 million, or 13%, from December 31, 2015, and approximately $1.9 billion in loans on properties used by borrowers in commercial operations, up approximately $64 million, or 3%, from December 31, 2015.  

Residential mortgages were down $49 million during the first three months of 2016 from the sale of approximately $52 million of single family mortgages.  Consumer loans decreased $33 million during the first three months of 2016.

Total FDIC acquired loans at March 31, 2016were down $4 million from December 31, 2015 and down $39 million from March 31, 2015, reflecting normal repayments, charge-offs and foreclosures.

Allowance for Loan Losses and Asset Quality

The Company's total allowance for loan losses was $217.8 million at March 31, 2016, compared to $181.2 million at December 31, 2015.  The allowance maintained on the non-FDIC acquired portion of the loan portfolio totaled $197.3 million, a $39.2 million linked-quarter increase, and the impaired reserve on the FDIC acquired loan portfolio decreased $2.6 million linked-quarter. 

57

During the first quarter of 2016, there were in excess of $300 million in outstanding energy credits downgrades to criticized.  The increase in criticized loans was mainly related to the application of new regulatory guidance which was used in the recent shared national credit (SNC) exam that was completed on March 15, 2016.  Approximately 75% of the increase in criticized energy loans was from reserve-based lending credits identified in the shared national credit exam or based on new guidance provided by the regulators.  Several of the reserve-based lending credits downgraded in the exam, totaling approximately $82 million, were moved to nonaccrual status.  As of March 31, 2016, criticized loans in the energy portfolio were $761 million, or approximately 47% of the energy portfolio.

Due to the changes noted above, and the impact of the prolonged energy cycle, the Company increased its allowance for loan losses on the energy portfolio and booked a $60 million total provision for credit losses in the quarter.  Approximately $50 million of the provision expense was related to the energy portfolio.  As a result, and after energy charge-offs of approximately $17 million, the allowance for the energy portfolio was increased $33 million, to $111 million, or almost 7% of energy loans. 

The following table provides a breakout of the Company’s allowance for loan losses for the energy portfolio, allocated by sector at March 31, 2016.

(in millions)	Outstanding Balance	Allocated Allowance for Loan and Lease Losses	Allowance for Loan and Lease Losses as a % of Loans
Upstream (reserve-based lending)	$           598.9	$           32.7	5.5%
Midstream	107.7	0.7	0.6%
Support - drilling	244.2	26.7	10.9%
Support - nondrilling	682.0	51.1	7.5%
Total	$        1,632.8	$         111.2	6.8%

Management continues to closely monitor the potential impact that the decrease in oil and natural gas prices over the past twenty-one months will have on the ability of the Company’s energy loan portfolio customers’ to service their debt.  Part of the ongoing monitoring includes a review of customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics.  As new information becomes available, the Company could have additional risk rating downgrades.  Management believes that if further risk rating downgrades occur, they could lead to additional loan loss provisions, a higher allowance for loan losses, and additional charge-offs.  However, management does not believe any resulting losses will be significant enough to put our capital levels at risk.  Based upon its assessment of information currently available, management currently estimates that charge-offs from energy-related credits could approximate $65-$95 million over the duration of the cycle.  See Item 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion of the Company’s energy portfolio and its potential impact on the allowance for loan losses.

The $2.6 million linked-quarter decrease in the allowance related to the FDIC acquired loan portfolio is the result of lower projected losses.

The ratio of the allowance to period-end loans was 1.36% at March 31, 2016, compared to 1.15% at December 31, 2015.  The allowance maintained on the originated portion of the loan portfolio totaled $197.3 million, or 1.27% of related loans, at March 31,  2016,  compared to $158.0 million, or 1.04%, at December 31, 2015. 

Net charge-offs for the three months ended March 31, 2016 from the non-FDIC acquired loan portfolio were $21.3 million, or 0.54% of average total loans on an annualized basis, compared to $7.9 million, or 0.21%, for the three-month period ended December 31, 2015.  Included in the first quarter of 2016 total are $17.4 million in charge-offs related to energy credits.

58

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

	Three Months Ended
	March 31,			December 31,			March 31,
(in thousands)	2016			2015			2015
Allowance for loan losses at beginning of period	$	181,179		$	139,576		$	128,762
Loans charged-off:
Non-FDIC acquired loans:
Commercial non real estate		17,667			3,866			1,697
Construction and land development		110			941			747
Commercial real estate		898			354			251
Residential mortgages		175			184			1,209
Consumer		5,843			6,257			3,556
Total non-FDIC acquired charge-offs		24,693			11,602			7,460
FDIC acquired loans:
Commercial non real estate		—			2			127
Construction and land development		18			4			276
Commercial real estate		29			11			2,368
Residential mortgages		—			24			93
Consumer		—			3			140
Total FDIC acquired charge-offs		47			44			3,004
Total charge-offs		24,740			11,646			10,464
Recoveries of loans previously charged-off:
Non-FDIC acquired loans:
Commercial non real estate		809			753			981
Construction and land development		605			173			1,243
Commercial real estate		185			1,770			(3)
Residential mortgages		301			109			305
Consumer		1,494			920			1,280
Total non-FDIC acquired recoveries		3,394			3,725			3,806
FDIC acquired loans:
Commercial non real estate		3			5			14
Construction and land development		35			14			406
Commercial real estate		36			35			113
Residential mortgages		1			79			—
Consumer		39			11			16
Total FDIC acquired recoveries		114			144			549
Total recoveries		3,508			3,869			4,355
Net charge-offs - non-FDIC acquired		21,299			7,877			3,654
Net charge-offs - FDIC acquired		(67)			(100)			2,455
Total net charge-offs		21,232			7,777			6,109
Provision for loan losses before FDIC benefit - FDIC acquired loans		(2,685)			(2,485)			(491)
Benefit attributable to FDIC loss share agreement		2,189			816			421
Provision for loan losses non-FDIC acquired loans		60,532			51,865			6,224
Provision for loan losses, net		60,036			50,196			6,154
(Decrease) Increase in FDIC loss share receivable		(2,189)			(816)			(421)
Allowance for loan losses  at end of period	$	217,794		$	181,179		$	128,386
Ratios:
Gross charge-offs - non-FDIC acquired to average loans		0.62	%		0.30	%		0.22	%
Recoveries - non-FDIC acquired to average loans		0.09	%		0.10	%		0.11	%
Net charge-offs - non-FDIC acquired to average loans		0.54	%		0.21	%		0.11	%
Allowance for loan losses to period-end loans		1.36	%		1.15	%		0.92	%

59

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

	March 31,			December 31,
(in thousands)	2016			2015
Loans accounted for on a nonaccrual basis: (a)
Commercial  non-real estate loans	$	151,342		$	83,677
Commercial non-real estate loans - restructured		14,588			5,066
Total commercial non-real estate loans		165,930			88,743
Construction and land development loans		15,710			15,993
Construction and land development loans - restructured		1,287			1,301
Total construction and land development loans		16,997			17,294
Commercial real estate loans		20,400			19,066
Commercial real estate loans - restructured		1,725			1,750
Total commercial real estate loans		22,125			20,816
Residential mortgage loans		23,005			23,082
Residential mortgage loans - restructured		708			717
Total residential mortgage loans		23,713			23,799
Consumer loans		8,538			9,061
Total nonaccrual loans	$	237,303		$	159,713
Restructured loans - still accruing:
Commercial non-real estate loans	$	41,273		$	—
Construction and land development loans		19			20
Commercial real estate loans		4,095			4,111
Residential mortgage loans		175			106
Consumer loans		58			60
Total restructured loans - still accruing		45,620			4,297
Total nonperforming loans		282,923			164,010
ORE and foreclosed assets		24,032			27,133
Total nonperforming assets (b)	$	306,955		$	191,143
Loans 90 days past due still accruing	$	9,226		$	7,653
Total restructured loans	$	63,928		$	13,131
Ratios:
Nonperforming assets to loans plus ORE and foreclosed assets		1.92	%		1.22	%
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due		74.55	%		105.54	%
Loans 90 days past due still accruing to loans		0.06	%		0.05	%

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

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

Nonperforming assets totaled $307 million at March 31, 2016, up $116 million from December 31, 2015.  During the first quarter of 2016, total nonperforming loans increased approximately $119 million while ORE and other foreclosed assets decreased approximately $3 million.The net increase in nonperforming loans was mainly related to the movement of several energy credits, totaling approximately $90 million during the quarter.  Nonperforming assets as a percent of total loans, ORE, and other foreclosed assets was 1.92% at March 31, 2016,  up 70 bps from December 31, 2015. 

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Short-Term Investments

Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors.  Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, decreased to $152 million at March 31, 2016. This total was down $414 million from December 31, 2015, and $364 million from March 31, 2015.  These assets are highly volatile on a daily basis depending upon movement in customer loan and deposit accounts.  Average short-term investments of $519 million for the first quarter of 2016 were up $74 million compared to the fourth quarter of 2015, and down $139 million, or 21%, compared to the first quarter of 2015. See the Liquidity section above for further discussion regarding the management of its short-term investment portfolio and its impact on the Company’s liquidity in general.

Deposits

Total deposits were $18.7 billion at March 31, 2016, up $307 million, or 2%, from December 31, 2015, and $1.8 billion, or 11%, fromMarch 31, 2015.  Average deposits for the first quarter of 2016 were $18.3 billion, up $460 million, or 3% from the fourth quarter of 2015. The continuing impact of the deposit growth initiatives implemented during 2015and greater utilization of the Company’s brokered deposits program offset the seasonal declines that typically reduce deposits in the first quarter of each year.

Noninterest-bearing demand deposits were $7.1 billion at March 31, 2016, down $168 million, or 2%, compared to the fourth quarter and were up $907 million, or 15%, from March 31, 2015.In the fourth quarter of 2015,the Company redesigned its deposit product offerings, resulting in a transfer of approximately $1.2 billion of balances from interest-bearing transaction accounts to noninterest-bearingdemand deposits.Management believes that the benefits included the new suite of consumer products will minimize migration to other interest-bearing products in a rising interest rate environment.   Noninterest-bearing demand deposits comprised 38.1% of total period-end deposits at March 31, 2016, down from 39.7% at December 31, 2015, but up from 36.8% at March 31, 2015. 

Interest-bearing transaction and savings accounts of $7.0 billion at March 31, 2016, increased $276 million, or 4% compared to year-end, and were up $467 million, or 7% from March 31, 2015. Additional deposits attracted through the deposit initiatives more than offset the effect of the transfer of deposits into noninterest-bearing accounts mentioned above. 

Interest-bearing public fund deposits totaled $2.2 billion at March 31, 2016, down $101 million, or 4% from December 31, 2015. This category totaled $1.8 billion at March 31, 2015.  These deposits are seasonal in nature with normal quarterly fluctuations.

Time deposits, other than public funds, at March 31, 2016, increased $300 million, or 15% from December 31, 2015 and $97 million, or 4% compared to March 31, 2015.  Brokered CDs increased $241 million from December 31, 2015 and $340 million from March 31, 2015.  Other CDs increased $59 million, or 4% during the first quarter, and $149 million, or 9%, from March 31, 2015.   The Company discontinued the Eurodollar sweep deposit product in the fourth quarter of 2015.  This product totaled $391 million at March 31, 2015.  As discussed in the Liquidity section, the Company uses brokered deposits, subject to strict parameters regarding term and rates, as a short-term funding source.

Short-Term Borrowings

At March 31, 2016, short-term borrowings totaled $1.1 billion, down $323 million, or 23%, from December 31, 2015. FHLB borrowings decreased $225 million, or 25%, while securities sold under agreements to repurchase (“Reverse Repos”) decreased $95 million, or 18%.   Short-term borrowings increased$346 million compared to March 31, 2015 as FHLB borrowings increased $475 million while Reverse Repos were down $125 million. Reverse Repos and FHLB borrowings are the major sources of short-term borrowings. Reverse Repos are offered mainly to commercial customers to assist them with their cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, the amounts available over time can be volatile.  FHLB borrowings are funds from the Federal Home Loan Bank that are collateralized by loans in the bank’s loan portfolio.

OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

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

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

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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 March 31, 2016 according to expiration date. 

			Expiration Date
			Less than		1-3		3-5		More than
(in thousands)	Total		1 year		years		years		5 years
Commitments to extend credit	$	5,735,863	$	2,663,491	$	1,201,057	$	1,138,428	$	732,887
Letters of credit		378,720		230,450		117,287		30,983		—
Total	$	6,114,583	$	2,893,941	$	1,318,344	$	1,169,411	$	732,887

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

Goodwill Impairment Testing

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

The Company completed its annual impairment test of goodwill as of December 31, 2015 and concluded that there was no impairment of goodwill.  However, the continuation of the downturn in the energy cycle combined with a continued decline in the Company’s stock price and market capitalization, and an unusually large first quarter 2016 loan loss provision indicated there may be impairment.  As a result, management tested for goodwill impairment as of March 31, 2016.

Consistent with December 31, 2015, the Company used multiple approaches to measure its fair value at March 31, 2016.  These included an income approach using the discounted net present value of estimated future cash flows, a transaction or price-to-book multiple approach using the actual price paid by similar companies in recent acquisition transactions and a market capitalization approach using both the Company’s actual market capitalization at March 31, 2016 and an estimated market capitalization using a price-to-earnings multiple based off the Company’s 2016 and 2017 forecast.

The results from each of the approaches were relatively similar with little disparity and were combined and weighted to derive an estimated fair market value for the Company.  Equal weightings were given to the income approach, the transaction approach and the market capitalization approach using 2016 and 2017 forecasted earnings and a lower weighting given to the current market

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capitalization approach as management believes the Company’s current market capitalization is temporarily depressed due to the depressed energy sector. The weighted approach resulted in a fair market value approximately 13% higher than net book value at March 31, 2016.

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

NEW ACCOUNTING PRONOUNCEMENTS

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

FORWARD-LOOKING STATEMENTS

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

Forward-looking statements that we may make include, but may not be limited to, comments with respect to future levels of economic activity in our markets,including the impact of volatility of oil and gas prices on our energy portfolio and associated loan loss reserves and possible charge-offs, and the downstream impact on businesses that support the energy sector, especially in the Gulf Coast region, loan growth expectations, deposit trends, credit quality trends, net interest margin trends, future expense levels, success of revenue-generating initiatives, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as net accretion levels, possible repurchases of shares under stock buyback programs, and the financial impact of regulatory requirements.  The Company’s ability to accurately project results, predict the effects of future plans or strategies, or predict market or economic developments is inherently limited.  Although the Company believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements.  Factors that could cause actual results to differ from those expressed in the Company’s forward-looking statements include, but are not limited to, those risk factors included in Hancock’s public filings with the Securities and Exchange Commission, which are available at the SEC’s internet site (http://www.sec.gov).  You are cautioned not to place undue reliance on these forward-looking statements.  The Company does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

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

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The table below presents the results of simulations run as of March 31, 2016 for year 1 and year 2, assuming the indicated instantaneous and sustained parallel shift in the yield curve at the measurement date. These results indicate that we are slightly asset sensitive compared to the stable rate environment assumed for the base case.

Net Interest Income (te) at Risk
	Estimated
Change in	increase (decrease)
interest rate	in net interest income
(basis points)	Year 1		Year 2
+100	1.61	%	1.97	%
+200	3.94	%	4.54	%
+300	5.55	%	6.10	%

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

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

Item 4. Controls and Procedures

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

Our management, including the Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the three-month period ended March 31, 2016, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A.  Risk Factors

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

The risks described may not be the only risks facing us.  Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

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

On August 28, 2015 the Company approved a stock purchase program authorizing the repurchase of up to 5% of its outstanding stock, or approximately 3.9 million shares, until September 2016.  As of March 31, 2016, there were 3.2 million shares available for repurchase under the plan. Under this plan, the Company has repurchased 741,393 shares of its common stock at an average price of $27.44 per share.  There were no share repurchases during the first quarter of 2016.  

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Item 6.  Exhibits.

(a)  Exhibits:

Exhibit
Number	Description
3.1	Composite Articles of the Company (filed as Exhibit 2.1 to the Company's Form 10-K for the year ended December 31, 2014 (file No. 01-36872) filed with the Commission on February 27, 2015.
3.2	Amended and Restated Bylaws, dated November 8, 1990 (filed as Exhibit 3.2 to Hancock's registration statement on Form S-8 filed with the Commission on September 19, 1996 and incorporated herein by reference.
*10.1	Separation and Restrictive Covenant Agreement, between the Company and Edward G. Francis, dated April 7, 2016.
*10.2	Form of Amended Restricted Stock Award Agreement (amending awards approved in 2016).
*10.3	2016 Executive Incentive Plan.
*10.4	First Amendment to Credit Agreement and Waiver, dated May 3, 2016.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	XBRL Interactive Data.

*   Filed with this Form 10Q

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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 Holding Company
By:	/s/ John M. Hairston
	John M. Hairston
	President & Chief Executive Officer
	(Principal Executive Officer)
	/s/ Michael M. Achary
	Michael M. Achary
	Chief Financial Officer
	(Principal Financial Officer)
Date:	May9, 2016

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Index to Exhibits

Exhibit
Number	Description
3.1	Composite Articles of the Company (filed as Exhibit 2.1 to the Company's Form 10-K for the year ended December 31, 2014 (file No. 01-36872) filed with the Commission on February 27, 2015.
3.2	Amended and Restated Bylaws, dated November 8, 1990 (filed as Exhibit 3.2 to Hancock's registration statement on Form S-8 filed with the Commission on September 19, 1996 and incorporated herein by reference.
*10.1	Separation and Restrictive Covenant Agreement, between the Company and Edward G. Francis, dated April 7, 2016.
*10.2	Form of Amended Restricted Stock Award Agreement (amending awards approved in 2016).
*10.3	2016 Executive Incentive Plan.
*10.4	First Amendment to Credit Agreement and Waiver, dated May 3, 2016.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	XBRL Interactive Data.

*   Filed with this Form 10Q