XNAS:HBHC Hancock Holding Company Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2012

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 0-13089

 

 

HANCOCK HOLDING COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

Mississippi   64-0693170

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

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

(228) 868-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

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

 

 

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

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

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨      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  x

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

84,778,525 common shares were outstanding as of July 31, 2012 for financial statement purposes.

 

 

 


Table of Contents

Hancock Holding Company

Index

 

     Page Number  

Part I. Financial Information

  

ITEM 1. Financial Statements

  

Consolidated Balance Sheets — June 30, 2012 (unaudited) and December 31, 2011

     1   

Consolidated Statements of Income (unaudited) — Three and six months ended June 30, 2012 and 2011

     2   

Consolidated Statements of Comprehensive Income (unaudited) — Three and six months ended June  30, 2012 and 2011

     3   

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Three and six months ended June 30, 2012 and 2011

     4   

Consolidated Statements of Cash Flows (unaudited) — Three and six months ended June  30, 2012 and 2011

     5   

Notes to Consolidated Financial Statements (unaudited) — June 30, 2012

     6-39   

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

     40-61   

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

     62   

ITEM 4. Controls and Procedures

     62   

Part II. Other Information

  

ITEM 1. Legal Proceedings

     63   

ITEM 1A. Risk Factors

     63-64   

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

     66   


Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

 

     June 30,     December 31,  
     2012     2011  
     unaudited        

ASSETS

    

Cash and due from banks

   $ 392,601      $ 437,947   

Interest-bearing bank deposits

     648,748        1,184,222   

Federal funds sold

     1,722        197   

Securities available for sale, at fair value

    (amortized cost of $2,249,310 and $4,401,345)

     2,320,133        4,496,900   

Securities held to maturity (fair value of $2,039,058)

     2,000,324        —     

Loans held for sale

     44,918        72,378   

Loans

     11,094,762        11,191,901   

Less: allowance for loan losses

     (140,768     (124,881

unearned income

     (16,616     (14,875
  

 

 

   

 

 

 

Loans, net

     10,937,378        11,052,145   
  

 

 

   

 

 

 

Property and equipment, net of accumulated depreciation of $148,422 and $148,780

     477,806        505,387   

Prepaid expenses

     63,908        69,064   

Other real estate, net

     137,630        144,367   

Accrued interest receivable

     49,313        53,973   

Goodwill

     628,877        651,162   

Other intangible assets, net

     205,249        211,075   

Life insurance contracts

     363,876        355,026   

FDIC loss share indemnification asset

     200,988        212,885   

Deferred tax asset, net

     150,323        145,760   

Other assets

     154,913        181,608   
  

 

 

   

 

 

 

Total assets

   $ 18,778,707      $ 19,774,096   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Deposits:

    

Non-interest bearing demand

   $ 5,040,484      $ 5,516,336   

Interest-bearing savings, NOW, money market and time

     9,890,336        10,197,243   
  

 

 

   

 

 

 

Total deposits

     14,930,820        15,713,579   
  

 

 

   

 

 

 

Short-term borrowings

     832,709        1,044,454   

Long-term debt

     360,312        353,890   

Accrued interest payable

     6,442        8,284   

Other liabilities

     249,062        286,726   
  

 

 

   

 

 

 

Total liabilities

     16,379,345        17,406,933   
  

 

 

   

 

 

 

Stockholders’ equity

    

Common stock - $3.33 par value per share; 350,000,000 shares authorized, 84,773,981 and 84,705,496 issued and outstanding, respectively

     282,297        282,069   

Capital surplus

     1,641,010        1,634,634   

Retained earnings

     493,517        476,970   

Accumulated other comprehensive income (loss), net

     (17,462     (26,510
  

 

 

   

 

 

 

Total stockholders’ equity

     2,399,362        2,367,163   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 18,778,707      $ 19,774,096   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

1


Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

 

     Three Months Ended    

Six Months Ended

 
     June 30,     June 30,  
     2012      2011     2012      2011  

Interest income:

          

Loans, including fees

   $ 165,278       $ 94,591      $ 331,506       $ 162,592   

Securities-taxable

     23,431         19,023        46,748         32,017   

Securities-tax exempt

     1,311         1,347        2,955         2,586   

Federal funds sold and other short term investments

     469         516        996         815   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     190,489         115,477        382,205         198,010   
  

 

 

    

 

 

   

 

 

    

 

 

 

Interest expense:

          

Deposits

     7,872         13,570        18,135         27,579   

Short-term borrowings

     1,623         1,755        3,262         3,443   

Long-term debt and other interest expense

     3,535         1,093        7,061         1,165   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     13,030         16,418        28,458         32,187   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income

     177,459         99,059        353,747         165,823   

Provision for loan losses

     8,025         9,144        18,040         17,966   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for loan losses

     169,434         89,915        335,707         147,857   
  

 

 

    

 

 

   

 

 

    

 

 

 

Noninterest income:

          

Service charges on deposit accounts

     20,907         12,343        37,181         21,887   

Bank card fees

     8,075         5,968        16,539         9,478   

Trust fees

     7,983         5,301        16,721         9,292   

Insurance commissions and fees

     4,581         4,629        8,058         7,878   

Investment and annuity fees

     4,607         3,267        9,022         6,400   

ATM fees

     4,843         3,290        9,177         6,021   

Secondary mortgage market operations

     3,015         1,877        7,017         3,444   

Accretion of indemnification asset

     2,000         5,450        5,000         8,494   

Other income

     7,541         4,591        16,331         8,005   

Securities gains (losses), net

     —           (36     12         (87
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest income

     63,552         46,680        125,058         80,812   
  

 

 

    

 

 

   

 

 

    

 

 

 

Noninterest expense:

          

Compensation expense

     72,188         46,971        147,772         76,379   

Employee benefits

     17,936         10,564        37,679         18,991   
  

 

 

    

 

 

   

 

 

    

 

 

 

Salaries and employee benefits

     90,124         57,535        185,451         95,370   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net occupancy expense

     13,784         8,760        28,426         14,671   

Equipment expense

     6,744         3,661        13,834         6,515   

Data processing expense

     14,327         7,106        28,518         12,251   

Professional services expense

     14,658         22,886        39,760         28,146   

Telecommunications and postage

     5,597         3,642        11,755         6,402   

Advertising

     3,330         2,127        10,020         4,176   

Deposit insurance and regulatory fees

     3,903         3,232        7,295         6,344   

Amortization of intangibles

     7,922         1,621        16,226         2,235   

Other expense

     19,583         10,796        44,150         18,275   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest expense

     179,972         121,366        385,435         194,385   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income taxes

     53,014         15,229        75,330         34,284   

Income taxes

     13,710         3,141        17,531         6,868   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 39,304       $ 12,088      $ 57,799       $ 27,416   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic earnings per common share

   $ 0.46       $ 0.22      $ 0.68       $ 0.59   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.46       $ 0.22      $ 0.67       $ 0.59   
  

 

 

    

 

 

   

 

 

    

 

 

 

Dividends paid per share

   $ 0.24       $ 0.24      $ 0.48       $ 0.48   
  

 

 

    

 

 

   

 

 

    

 

 

 

Weighted avg. shares outstanding-basic

     84,751         54,890        84,742         46,160   
  

 

 

    

 

 

   

 

 

    

 

 

 

Weighted avg. shares outstanding-diluted

     85,500         55,035        85,467         46,310   
  

 

 

    

 

 

   

 

 

    

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

2


Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share data)

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2012      2011      2012     2011  

Net income

   $ 39,304       $ 12,088       $ 57,799      $ 27,416   

Other comprehensive income, net of tax:

          

Net change from retirement benefits plans

     1,096         468         2,193        152   

Unrealized net holding gain on securities, net of reclassifications

     1,615         3,227         7,028        6,169   

Net unrealized gain (loss) on derivatives and hedging

     12         96         (173     96   
  

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive income

     2,723         3,791         9,048        6,417   
  

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income

   $ 42,027       $ 15,879       $ 66,847      $ 33,833   
  

 

 

    

 

 

    

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share data)

 

     Common Stock     

Capital

    

Retained

   

Accumulated
Other

Comprehensive

       
     Shares      Amount      Surplus      Earnings     Income (Loss), net     Total  

Balance, January 1, 2011

     36,893,276       $ 122,855       $ 263,484       $ 470,828      $ (619   $ 856,548   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     —           —           —           27,416        —          27,416   

Other comprehensive income

     —           —           —           —          6,417        6,417   

Cash dividends declared ($0.48 per common share)

     —           —           —           (29,501     —          (29,501

Common stock offering

     6,958,143         23,170         190,824         —          —          213,994   

Common stock issued in connection with Whitney acquisition

     40,794,261         135,845         1,171,203         —          —          1,307,048   

Common stock activity, long-term incentive plan, including excess income tax benefit of $151

     48,794         162         4,229         —          —          4,391   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

     84,694,474       $ 282,032       $ 1,629,740       $ 468,743      $ 5,798      $ 2,386,313   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, January 1, 2012

     84,705,496       $ 282,069       $ 1,634,634       $ 476,970      $ (26,510   $ 2,367,163   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     —           —           —           57,799        —          57,799   

Other comprehensive income

     —           —           —           —          9,048        9,048   

Cash dividends declared ($0.48 per common share)

     —           —           —           (41,252     —          (41,252

Common stock issued, long-term incentive plan, including excess income tax benefit of $116

     68,485         228         6,376         —          —          6,604   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

     84,773,981       $ 282,297       $ 1,641,010       $ 493,517      $ (17,462   $ 2,399,362   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


Table of Contents

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

    

Six Months Ended June 30,

 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 57,799      $ 27,416   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     17,159        9,256   

Provision for loan losses

     18,040        17,966   

Losses on other real estate owned

     9,774        969   

Deferred tax expense

     12,571        26,190   

(Increase) in cash surrender value of life insurance contracts

     (8,850     (5,746

Loss on sales of securities available for sale, net

     —          87   

Loss (gain) on disposal of other assets

     383        (598

Net decrease in loans originated for sale

     27,460        3,943   

Net amortization of securities premium/discount

     26,154        3,960   

Amortization of intangible assets

     16,264        2,235   

Stock-based compensation expense

     5,014        2,900   

(Decrease) increase in interest payable and other liabilities

     (35,074     193,126   

Decrease in FDIC indemnification asset

     11,897        47,002   

Decrease (increase) in other assets

     36,505        (40,431

Other, net

     (116     (5
  

 

 

   

 

 

 

Net cash provided by operating activities

     194,980        288,270   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Proceeds from sales of securities available for sale

     477        323,426   

Proceeds from maturities of securities available for sale

     697,366        383,235   

Purchases of securities available for sale

     (103,344     (1,151,041

Proceeds from maturities of securities held to maturity

     114,925        —     

Purchases of investment securities held to maturity

     (560,436     —     

Net decrease in interest-bearing bank deposits

     535,474        107,634   

Net (increase) decrease in federal funds sold and short term investments

     (1,525     278,128   

Net decrease in loans

     66,251        144,707   

Purchases of property, equipment and intangible assets

     (20,118     (38,544

Proceeds from sales of property and equipment

     3,394        1,912   

Cash paid for acquisition, net of cash received

     —          (74,653

Proceeds from sales of other real estate

     55,791        30,660   
  

 

 

   

 

 

 

Net cash provided by investing activities

     788,255        5,464   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net decrease in deposits

     (782,760     (369,734

Net decrease in short-term borrowings

     (211,745     (7,128

Proceeds of long-term debt

     6,422        140,014   

Dividends paid

     (41,252     (29,501

Proceeds from exercise of stock options

     754        267   

Proceeds from stock offering

     —          213,994   
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,028,581     (52,088
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS

     (45,346     241,646   

CASH AND DUE FROM BANKS, BEGINNING

     437,947        139,687   
  

 

 

   

 

 

 

CASH AND DUE FROM BANKS, ENDING

   $ 392,601      $ 381,333   
  

 

 

   

 

 

 

SUPPLEMENTAL INFORMATION FOR NON-CASH

    

INVESTING AND FINANCING ACTIVITIES

    

Assets acquired in settlement of loans

   $ 42,751      $ 40,273   

Transfers from available for sale securities to held to maturity securities

     1,523,585        —     

Fair value of assets acquired

     $ 11,235,000   

Liabilities assumed

       (10,133,000
    

 

 

 

Net identifiable assets acquired

       1,102,000   
    

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

5


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The consolidated financial statements include the accounts of Hancock Holding Company and all majority-owned subsidiaries (the “Company”). They 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 U.S. generally accepted accounting principles 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 2011 Annual Report on Form 10-K. 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 periods.

Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 significantly from those estimates.

Critical Accounting Policies and Estimates

There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in our Form 10-K for the year ended December 31, 2011.

Securities

Securities that the Company both positively intends and has the ability to hold to maturity are classified as securities held to maturity and are carried at amortized cost. The intent and ability to hold are not considered satisfied when a security is available to be sold in response to changes in interest rates, prepayment rates, liquidity needs or other reasons as part of an overall asset/liability management strategy. Premiums and discounts on securities, both those held to maturity and those available for sale, are amortized and accreted to income as an adjustment to the securities’ yields using the interest method. Realized gains and losses on securities, including declines in value judged to be other than temporary, are reported net as a component of noninterest income. The cost of securities sold is specifically identified for use in calculating realized gains and losses.

 

6


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2. Fair Value

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

Fair Value of Assets and Liabilities Measured on a Recurring Basis

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

 

7


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

2. Fair Value (continued)

 

 

     June 30, 2012  
     (Level 1)      (Level 2)      Total  

Assets

        

Available for sale debt securities:

        

U.S. Treasury and government agency securities

   $ 18,514       $ —         $ 18,514   

Obligations of states and political subdivisions

     —           77,693         77,693   

Corporate debt securities

     3,750         —           3,750   

Residential mortgage-backed securities

     —           2,112,969         2,112,969   

Collateralized mortgage obligations

     —           101,022         101,022   

Equity securities

     6,185         —           6,185   
  

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     28,449         2,291,684         2,320,133   
  

 

 

    

 

 

    

 

 

 

Derivatives

        

Interest rate contracts - assets

     —           18,833         18,833   
  

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements - assets

   $ 28,449       $ 2,310,517       $ 2,338,966   
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Derivatives

        

Interest rate contracts - liabilities

   $ —         $ 19,880       $ 19,880   
  

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements - liabilities

   $ —         $ 19,880       $ 19,880   
  

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     (Level 1)      (Level 2)      Total  

Assets

        

Available for sale debt securities:

        

U.S. Treasury and government agency securities

   $ 250,067       $ —         $ 250,067   

Obligations of states and political subdivisions

     —           309,665         309,665   

Corporate debt securities

     4,494         —           4,494   

Residential mortgage-backed securities

     —           2,480,345         2,480,345   

Collateralized mortgage obligations

     —           1,446,076         1,446,076   

Equity securities

     6,253         —           6,253   
  

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     260,814         4,236,086         4,496,900   
  

 

 

    

 

 

    

 

 

 

Derivatives

        

Interest rate contracts - assets

     —           14,952         14,952   
  

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements - assets

   $ 260,814       $ 4,251,038       $ 4,511,852   
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Derivatives

        

Interest rate contracts - liabilities

   $ —         $ 15,643       $ 15,643   
  

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements - liabilities

   $ —         $ 15,643       $ 15,643   
  

 

 

    

 

 

    

 

 

 

 

8


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

2. Fair Value (continued)

 

Securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities, obligations of U.S. Government-sponsored agencies, and certain other debt and equity securities. Level 2 classified securities include residential mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds. The level 2 fair value measurements for investment securities were obtained from a third-party pricing service that uses industry-standard pricing models. Substantially all of the model inputs were observable in the marketplace or can be supported by observable data. The Company invests only in high quality securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two to five years. Company policies limit investments to securities having a rating of no less than “Baa” or its equivalent by a nationally recognized statistical rating agency, except for certain non-rated obligations of counties, parishes and municipalities within our markets in Mississippi, Louisiana, Texas, Florida and Alabama. There were no transfers between valuation hierarchy levels during the periods shown.

The fair value of derivative financial instruments, which are predominantly interest rate swaps, is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs, such as interest rate futures, 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 for all derivative instruments subject to master netting arrangements consistent with how market participants would price the net risk exposure at the measurement date.

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 using third-party appraisals of the collateral or other market-based information such as recent sales activity for similar assets in the property’s market. Other real estate owned are level 2 assets carried at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less. Fair values are determined by sales agreement or third-party appraisal.

 

9


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

2. Fair Value (continued)

 

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

 

     June 30, 2012  
     (Level 1)      (Level 2)      Total  

Impaired loans

   $ —         $ 55,686       $ 55,686   

Other real estate owned

     —           137,630         137,630   
  

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ —         $ 193,316       $ 193,316   
  

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     (Level 1)      (Level 2)      Total  

Impaired loans

   $ —         $ 55,252       $ 55,252   

Other real estate owned

     —           144,367         144,367   
  

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ —         $ 199,619       $ 199,619   
  

 

 

    

 

 

    

 

 

 

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. 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. For the remaining portfolio, fair values were generally determined by discounting scheduled cash flows by discount rates determined with reference to current market rates at which loans with similar terms would be made to borrowers of similar credit quality.

Accrued Interest Receivable and Accrued Interest Payable - The carrying amounts are 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 and Federal Funds Purchased - For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

 

10


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

2. Fair Value (continued)

 

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.

The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amount at June 30, 2012 and December 31, 2011 (in thousands):

 

     (Level 1)      June 30, 2012
(Level 2)
     (Level 3)      Total
Fair Value
     Carrying
Amount
 

Financial assets:

              

Cash, interest-bearing deposits, and federal funds sold

   $ 1,043,071       $ —         $ —         $ 1,043,071       $ 1,043,071   

Available for sale securities

     28,449         2,291,684         —           2,320,133         2,320,133   

Held to maturity securities

     —           2,039,058         —           2,039,058         2,000,324   

Loans, net

     —           55,686         11,188,609         11,244,295         10,937,378   

Loans held for sale

     —           44,918         —           44,918         44,918   

Accrued interest receivable

     49,313         —           —           49,313         49,313   

Derivative financial instruments

     —           18,833         —           18,833         18,833   

Financial liabilities:

              

Deposits

   $ —         $ —         $ 14,948,184       $ 14,948,184       $ 14,930,820   

Federal funds purchased

     30,411         —           —           30,411         30,411   

Securities sold under agreements to repurchase

     802,298         —           —           802,298         802,298   

Long-term debt

     —           387,650         —           387,650         360,312   

Accrued interest payable

     6,442         —           —           6,442         6,442   

Derivative financial instruments

     —           19,880         —           19,880         19,880   
     (Level 1)      December 31, 2011
(Level 2)
     (Level 3)      Total
Fair Value
     Carrying
Amount
 

Financial assets:

              

Cash, interest-bearing deposits, and federal funds sold

   $ 1,622,366       $ —         $ —           1,622,366       $ 1,622,366   

Available for sale securities

     260,814         4,236,086         —           4,496,900         4,496,900   

Loans, net

     —           55,252         11,134,410         11,189,662         11,052,144   

Loans held for sale

     —           72,378         —           72,378         72,378   

Accrued interest receivable

     53,973         —           —           53,973         53,973   

Derivative financial instruments

     —           14,952         —           14,952         14,952   

Financial liabilities:

              

Deposits

   $ —         $ —         $ 15,737,667       $ 15,737,667       $ 15,713,579   

Federal funds purchased

     16,819         —           —           16,819         16,819   

Securities sold under agreements to repurchase

     1,027,635         —           —           1,027,635         1,027,635   

Long-term debt

     —           365,421         —           365,421         353,890   

Accrued interest payable

     8,284         —           —           8,284         8,284   

Derivative financial instruments

     —           15,643         —           15,643         15,643   

 

11


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

3. Securities

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

Securitites Available for Sale

 

     June 30, 2012      December 31, 2011  
            Gross      Gross                    Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair      Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value      Cost      Gains      Losses      Value  

U.S. Treasury

   $ 150       $ 11       $ —         $ 161       $ 150       $ 14       $ —         $ 164   

U.S. government agencies

     18,305         48         —           18,353         248,595         1,308         —           249,903   

Municipal obligations

     76,585         1,111         3         77,693         294,489         15,218         42         309,665   

Mortgage-backed securities

     2,045,296         67,718         45         2,112,969         2,422,891         58,150         696         2,480,345   

CMOs

     100,655         367         —           101,022         1,426,495         21,774         2,193         1,446,076   

Corporate debt securities

     3,750         —           —           3,750         4,517         11         34         4,494   

Other equity securities

     4,569         1,634         18         6,185         4,208         2,086         41         6,253   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,249,310       $ 70,889       $ 66       $ 2,320,133       $ 4,401,345       $ 98,561       $ 3,006       $ 4,496,900   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securitites Held to Maturity

 

     June 30, 2012      December 31, 2011  
            Gross      Gross                    Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair      Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value      Cost      Gains      Losses      Value  

Municipal obligations

   $ 180,812       $ 15,133       $ 2       $ 195,943         —           —           —           —     

Mortgage-backed securities

     202,761         1,550         —           204,311         —           —           —           —     

CMOs

     1,616,751         24,586         2,533         1,638,804         —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,000,324       $ 41,269       $ 2,535       $ 2,039,058         —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the first quarter of 2012, the Company reclassified approximately $1.5 billion of securities available for sale as securities held to maturity. As a result of the acquisition of Whitney National Bank, the securities portfolio grew to such a size that the company determined that only a portion of the portfolio is needed for liquidity purposes. The securities reclassified consisted primarily of CMOs and in-market municipal securities. The securities were transferred at fair value, which became the cost basis for the securities held to maturity. The unrealized net holding gain on the available for sale securities on the date of transfer totaled approximately $39 million, and continued to be reported, net of tax, as a component of accumulated other comprehensive income. This net unrealized gain is being accreted to interest income over the remaining life of the securities as a yield adjustment, which serves to offset the impact of the amortization of the net premium created in the transfer. There were no gains or losses recognized as a result of this transfer.

 

12


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

3. Securities (continued)

 

The following table presents the amortized cost and fair value of debt securities classified as available for sale and held to maturity at June 30, 2012, by contractual maturity (in thousands). Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties.

 

     Amortized
Cost
     Fair
Value
 

Debt Securities Available for Sale

     

Due in one year or less

   $ 45,827       $ 45,973   

Due after one year through five years

     157,876         159,283   

Due after five years through ten years

     275,463         286,168   

Due after ten years

     1,765,575         1,822,524   
  

 

 

    

 

 

 

Total available for sale debt securities

   $ 2,244,741       $ 2,313,948   
  

 

 

    

 

 

 

 

     Amortized      Fair  
     Cost      Value  

Held to maturity

     

Due in one year or less

   $ 16,596       $ 16,685   

Due after one year through five years

     436,496         440,576   

Due after five years through ten years

     96,856         106,023   

Due after ten years

     1,450,376         1,475,774   
  

 

 

    

 

 

 

Total held to maturity securities

   $ 2,000,324       $ 2,039,058   
  

 

 

    

 

 

 

The Company held no securities classified as trading at June 30, 2012 or December 31, 2011. The Company held no securities classified as held to maturity at December 31, 2011.

The details concerning securities classified as available for sale with unrealized losses as of June 30, 2012 follow (in thousands):

Available for sale

 

     Losses < 12 months      Losses 12 months or >      Total  
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
 

U.S. Treasury

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. government agencies

     —           —           —           —           —           —     

Municipal obligations

     2,071         3         —           —           2,071         3   

Mortgage-backed securities

     4,259         43         246         2         4,505         45   

CMOs

     —           —           —           —           —           —     

Corporate debt securities

     —           —           —           —           —           —     

Equity securities

     208         16         2         2         210         18   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 6,538       $ 62       $ 248       $ 4       $ 6,786       $ 66   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

3. Securities (continued)

 

The details concerning securities classified as available for sale with unrealized losses as of December 31, 2011 follow (in thousands):

Available for sale

 

     Losses < 12 months      Losses 12 months or >      Total  
     Fair Value      Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
 

U.S. Treasury

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. government agencies

     —           —           —           —           —           —     

Municipal obligations

     18,854         42         —           —           18,854         42   

Mortgage-backed securities

     212,900         692         337         4         213,237         696   

CMOs

     296,860         2,193         —           —           296,860         2,193   

Corporate debt securities

     398         34         —           —           398         34   

Equity securities

     1,685         39         2         2         1,687         41   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 530,697       $ 3,000       $ 339       $ 6       $ 531,036       $ 3,006   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The details concerning securities classified as held to maturity with unrealized losses as of June 30, 2012 follow (in thousands):

Held to maturity

 

     Losses < 12 months      Losses 12 months or >      Total  
     Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
 

Municpal obligations

   $ 540       $ 1       $ 256       $ 1       $ 796       $ 2   

CMOs

     391,383         1,523         174,084         1,010         565,467       $ 2,533   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 391,923       $ 1,524       $ 174,340       $ 1,011       $ 566,263       $ 2,535   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Substantially all of the unrealized losses relate mainly to changes in market rates on fixed-rate debt securities since the respective purchase date. In all cases, the indicated impairment would be recovered by 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 honor redemption of the obligations. The Company has adequate liquidity and, therefore, does not plan to sell 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 a fair value of approximately $2.5 billion at June 30, 2012 and $3.0 billion at December 31, 2011 were pledged primarily to secure public deposits or securities sold under agreements to repurchase.

 

14


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses

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

 

     June 30,      December 31,  
     2012      2011  
     (In thousands)  

Originated loans:

     

Commerical non-real estate

   $ 1,902,292       $ 1,525,409   

Construction and land development

     630,997         540,806   

Commerical real estate

     1,316,772         1,259,757   

Residential mortgage loans

     654,149         487,147   

Consumer loans

     1,306,648         1,074,611   
  

 

 

    

 

 

 

Total originated loans

   $ 5,810,858       $ 4,887,730   
  

 

 

    

 

 

 

Acquired loans:

     

Commerical non-real estate

   $ 1,948,226       $ 2,236,758   

Construction and land development

     443,057         603,371   

Commerical real estate

     1,450,796         1,656,515   

Residential mortgage loans

     598,199         734,669   

Consumer loans

     239,276         386,540   
  

 

 

    

 

 

 

Total acquired loans

   $ 4,679,554       $ 5,617,853   
  

 

 

    

 

 

 

Covered loans:

     

Commerical non-real estate

   $ 39,971       $ 38,063   

Construction and land development

     93,442         118,828   

Commerical real estate

     62,962         82,651   

Residential mortgage loans

     267,363         285,682   

Consumer loans

     123,996         146,219   
  

 

 

    

 

 

 

Total covered loans

   $ 587,734       $ 671,443   
  

 

 

    

 

 

 

Total loans:

     

Commerical non-real estate

   $ 3,890,489       $ 3,800,230   

Construction and land development

     1,167,496         1,263,005   

Commerical real estate

     2,830,530         2,998,923   

Residential mortgage loans

     1,519,711         1,507,498   

Consumer loans

     1,669,920         1,607,370   
  

 

 

    

 

 

 

Total loans

   $ 11,078,146       $ 11,177,026   
  

 

 

    

 

 

 

 

15


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

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

Originated loans

Loans originated for investment are reported at the principal balance outstanding net of unearned income. Interest on loans and accretion of unearned income 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 originated loans is discontinued when it is probable that the borrower will be unable to meet payment obligations as they become due. The Company maintains an allowance for loan losses on originated loans that represents management’s estimate of probable losses inherent in this portfolio category. The methodology for estimating the allowance is described in Note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. As actual losses are incurred, they are charged against the allowance. Subsequent recoveries are added back to the allowance when collected.

Acquired loans

Acquired loans are those purchased in the Whitney Holding Corporation acquisition on June 4, 2011. These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated between those considered to be performing (“acquired performing”) and those with evidence of credit deterioration (“acquired impaired”), and then further segregated into pools using common risk characteristics, such as loan type, geography and risk rating. The fair value estimate for each pool was based on an estimate of cash flows, both principal and interest, expected to be collected from that pool, discounted at prevailing market rates of interest. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

The difference between the fair value of an acquired performing loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool. Management estimates an allowance for loan losses for acquired performing loans at each subsequent reporting date using a methodology similar to that used for originated loans. The allowance determined for each loan pool is compared to the remaining fair value discount for that pool. If greater, the excess is added to the reported allowance through a provision for loan losses. If less, no additional allowance or provision is recognized. Actual losses are first charged against any remaining fair value discount for the loan pool. Once the discount is fully depleted, losses are applied against the allowance established for that pool. Acquired performing loans are considered and reported as nonperforming and past due using the same criteria applied to the originated portfolio. The accrual of interest on acquired performing loans 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.

The excess of cash flows expected to be collected from an acquired impaired loan pool over the pool’s estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool. Management updates the estimate of cash flows expected to be collected on each acquired impaired loan pool at each reporting date. If expected cash flows for a pool decrease, an increase in the reported allowance for loan losses is made through a provision for loan losses. If expected cash flows for a pool increase, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool.

 

16


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

Covered loans and the related loss share indemnification asset

The loans purchased in the 2009 acquisition of Peoples First Community Bank are covered by two loss share agreements between the FDIC and the Company that afford the Company significant loss protection. Covered loans are accounted for as acquired impaired loans as described above. The loss share indemnification asset is measured separately from the related covered loans as it is not contractually embedded in the loans and is not transferable should the loans be sold. The fair value of the indemnification asset at acquisition was estimated by discounting projected cash flows from the loss share agreements based on expected reimbursements for allowable loss claims, including appropriate consideration of possible true-up payments to the FDIC at the expiration of the agreements. The discounted amount is accreted into non-interest income over the remaining life of the covered loan pool or the life of the shared loss agreement.

In the following discussion and tables, commercial loans include the commercial non-real estate, construction and land development and commercial real estate loans categories shown in previous table.

The following schedule shows activity in the allowance for loan losses, by portfolio segment and the corresponding recorded investment in loans, for the six months ended June 30, 2012 and June 30, 2011.

 

17


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

 

Originated loans:

   Commercial     Residential
mortgages
    Consumer     Total  

(In thousands)

   June 30, 2012  

Allowance for loan losses:

        

Beginning balance, January 1, 2012

   $ 60,211      $ 4,894      $ 18,141      $ 83,246   

Charge-offs

     (12,971     (2,633     (6,773     (22,377

Recoveries

     3,065        66        1,981        5,112   

Net provision for loan losses

     9,888        6,009        (502     15,395   

Increase (decrease) in indemnification asset

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 60,193      $ 8,336      $ 12,847      $ 81,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

        

Individually evaluated for impairment

   $ 8,076      $ 1,916      $ —        $ 9,992   

Ending balance:

        

Collectively evaluated for impairment

   $ 52,117      $ 6,420      $ 12,847      $ 71,384   

Loans:

        

Ending balance:

   $ 3,850,061      $ 654,149      $ 1,306,648      $ 5,810,858   

Ending balance:

        

Individually evaluated for impairment

   $ 54,050      $ 11,628      $ —        $ 65,678   

Ending balance:

        

Collectively evaluated for impairment

   $ 3,796,011      $ 642,521      $ 1,306,648      $ 5,745,180   

Covered loans:

   Commercial     Residential
mortgages
    Consumer     Total  

(In thousands)

   June 30, 2012  

Allowance for loan losses:

        

Beginning balance, January 1, 2012

   $ 18,203      $ 9,024      $ 14,408      $ 41,635   

Charge-offs

     (19,289     —          —          (19,289

Recoveries

     —          —          —          —     

Net provision for loan losses (a)

     2,700        351        (406     2,645   

Increase (decrease) in indemnification asset (a)

     22,650        11,189        562        34,401   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 24,264      $ 20,564      $ 14,564      $ 59,392   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

        

Individually evaluated for impairment

   $ —        $ —        $ —        $ —     

Ending balance:

        

Collectively evaluated for impairment

   $ 24,264      $ 20,564      $ 14,564      $ 59,392   

Loans:

        

Ending balance:

   $ 196,375      $ 267,363      $ 123,996      $ 587,734   

Ending balance:

        

Individually evaluated for impairment

   $ 5,781      $ 393      $ —        $ 6,174   

Ending balance:

        

Collectively evaluated for impairment

   $ 190,594      $ 266,970      $ 123,996      $ 581,560   

Total loans:

   Commercial     Residential
mortgages
    Consumer     Total  

(In thousands)

   June 30, 2012  

Allowance for loan losses:

        

Beginning balance, January 1, 2012

   $ 78,414      $ 13,918      $ 32,549      $ 124,881   

Charge-offs

     (32,260     (2,633     (6,773     (41,666

Recoveries

     3,065        66        1,981        5,112   

Net provision for loan losses (a)

     12,588        6,360        (908     18,040   

Increase (decrease) in indemnification asset (a)

     22,650        11,189        562        34,401   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 84,457      $ 28,900      $ 27,411      $ 140,768   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

        

Individually evaluated for impairment

   $ 8,076      $ 1,916      $ —        $ 9,992   

Ending balance:

        

Collectively evaluated for impairment

   $ 76,381      $ 26,984      $ 27,411      $ 130,776   

Loans:

        

Ending balance:

   $ 7,888,515      $ 1,519,711      $ 1,669,920      $ 11,078,146   

Ending balance:

        

Individually evaluated for impairment

   $ 59,831      $ 12,021      $ —        $ 71,852   

Ending balance:

        

Collectively evaluated for impairment

   $ 7,828,684      $ 1,507,690      $ 1,669,920      $ 11,006,294   

Ending balance:

        

Acquired loans (b)

   $ 3,842,079      $ 598,199      $ 239,276      $ 4,679,554   

 

(a) The Company increased the allowance by $37.0 million for losses related to impairment on certain pools of covered loans. This provision was mostly offset by a $34.4 million increase in the FDIC indemnification asset.
(b) In accordance with purchase accounting rules, the Whitney loans were recorded at their fair value at the time of the acquisition, and the prior allowance for loan losses was eliminated. No allowance has been established on these acquired loans since the acquisition date. These loans are included in the ending balance of loans collectively evaluated for impairment.

 

18


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

Originated loans:

   Commercial     Residential
mortgages
    Consumer     Total  

(In thousands)

   June 30, 2011  

Allowance for loan losses:

        

Beginning balance, January 1, 2011

   $ 56,859      $ 4,626      $ 19,840      $ 81,325   

Charge-offs

     (13,664     (2,332     (5,701     (21,697

Recoveries

     4,274        960        1,780        7,014   

Net provision for loan losses

     10,863        6,225        (570     16,518   

Increase (decrease) in indemnification asset

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 58,332      $ 9,479      $ 15,349      $ 83,160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

        

Individually evaluated for impairment

   $ 9,468      $ 1,420      $ —        $ 10,888   

Ending balance:

        

Collectively evaluated for impairment

   $ 48,864      $ 8,059      $ 15,349      $ 72,272   

Loans:

        

Ending balance:

   $ 2,845,955      $ 365,661      $ 971,742      $ 4,183,358   

Ending balance:

        

Individually evaluated for impairment

   $ 48,181      $ 7,678      $ —        $ 55,859   

Ending balance:

        

Collectively evaluated for impairment

   $ 2,797,774      $ 357,983      $ 971,742      $ 4,127,499   

Covered loans:

   Commercial     Residential
mortgages
    Consumer     Total  

(In thousands)

   June 30, 2011  

Allowance for loan losses:

        

Beginning balance, January 1, 2011

   $ —        $ —        $ 672      $ 672   

Charge-offs

     —          —          (375     (375

Recoveries

     —          —          —          —     

Net provision for loan losses (a)

     1,021        224        203        1,448   

Increase (decrease) in indemnification asset (a)

     19,378        3,864        4,260        27,502   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 20,399      $ 4,088      $ 4,760      $ 29,247   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

        

Individually evaluated for impairment

   $ —        $ —        $ —        $ —     

Ending balance:

        

Collectively evaluated for impairment

   $ 20,399      $ 4,088      $ 4,760      $ 29,247   

Loans:

        

Ending balance:

   $ 347,441      $ 247,489      $ 152,879      $ 747,809   

Ending balance:

        

Individually evaluated for impairment

   $ 33,869      $ 2,710      $ 2,935      $ 39,514   

Ending balance:

        

Collectively evaluated for impairment

   $ 313,572      $ 244,779      $ 149,944      $ 708,295   

Total loans:

   Commercial     Residential
mortgages
    Consumer     Total  

(In thousands)

   June 30, 2011  

Allowance for loan losses:

        

Beginning balance, January 1, 2011

   $ 56,859      $ 4,626      $ 20,512      $ 81,997   

Charge-offs

     (13,664     (2,332     (6,076     (22,072

Recoveries

     4,274        960        1,780        7,014   

Net provision for loan losses (a)

     11,884        6,449        (367     17,966   

Increase (decrease) in indemnification asset (a)

     19,378        3,864        4,260        27,502   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 78,731      $ 13,567      $ 20,109      $ 112,407   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

        

Individually evaluated for impairment

   $ 9,468      $ 1,420      $ —        $ 10,888   

Ending balance:

        

Collectively evaluated for impairment

   $ 69,263      $ 12,147      $ 20,109      $ 101,519   

Loans:

        

Ending balance:

   $ 8,233,519      $ 1,443,817      $ 1,571,717      $ 11,249,053   

Ending balance:

        

Individually evaluated for impairment

   $ 82,050      $ 10,388      $ 2,935      $ 95,373   

Ending balance:

        

Collectively evaluated for impairment

   $ 8,151,469      $ 1,433,429      $ 1,568,782      $ 11,153,680   

Ending balance:

        

Acquired loans (b)

   $ 5,040,123      $ 830,667      $ 447,096      $ 6,317,886   

 

(a) The Company increased the allowance by $29.2 million for losses related to impairment on certain pools of covered loans. This provision was mostly offset by a $27.5 million increase in the FDIC indemnification asset.
(b) In accordance with purchase accounting rules, the Whitney loans were recorded at their fair value at the time of the acquisition, and the prior allowance for loan losses was eliminated. No allowance has been established on these acquired loans since the acquisition date. These loans are included in the ending balance of loans collectively evaluated for impairment.

 

19


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

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

 

     June 30,      December 31,  
     2012      2011  
     (In thousands)  

Originated loans:

     

Commercial loans

   $ 92,510       $ 55,046   

Residential mortgage loans

     11,066         24,406   

Consumer loans

     6,193         3,855   
  

 

 

    

 

 

 

Total originated loans

   $ 109,769       $ 83,307   
  

 

 

    

 

 

 

Acquired loans:

     

Commercial loans

   $ 5,466       $ —     

Residential mortgage loans

     1,169         —     

Consumer loans

     508         1,117   
  

 

 

    

 

 

 

Total acquired loans

   $ 7,143       $ 1,117   
  

 

 

    

 

 

 

Covered loans:

     

Commercial loans

   $ 5,781       $ 18,209   

Residential mortgage loans

     393         637   

Consumer loans

     —           —     
  

 

 

    

 

 

 

Total covered loans

   $ 6,174       $ 18,846   
  

 

 

    

 

 

 

Total loans:

     

Commercial loans

   $ 103,757       $ 73,255   

Residential mortgage loans

     12,628         25,043   

Consumer loans

     6,701         4,972   
  

 

 

    

 

 

 

Total loans

   $ 123,086       $ 103,270   
  

 

 

    

 

 

 

The amount of interest that would have been recorded on nonaccrual loans for the six months ended June 30, 2012 was approximately $3.6 million. Interest actually received on nonaccrual loans during the six months ended June 30, 2012 was $1.1 million.

Included in nonaccrual loans is $9.7 million in restructured commercial loans. Total troubled debt restructurings as of June 30, 2012 were $19.5 million and $18.1 million at December 31, 2011. Modified acquired impaired loans are not removed from their accounting pool and accounted for as TDRs, even if those loans would otherwise be deemed TDRs.

 

20


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

The table below details the troubled debt restructurings (TDR) that occurred for the periods ended June 30, 2012 and 2011 by portfolio segment (dollar amounts in thousands). During these periods, no loan modified as a TDR defaulted within twelve months of its modification date. A reserve analysis is completed on all loans that have been determined to be troubled debt restructurings by management. All troubled debt restructurings are rated substandard and are considered impaired in calculating the allowance for loan losses.

 

     June 30, 2012      June 30, 2011  
            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 loans

     22       $ 23,050       $ 18,349         17       $ 21,668       $ 17,288   

Residential mortgage loans

     3         1,169         1,169         3         1,342         1,318   

Consumer loans

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

     25       $ 24,219       $ 19,518         20       $ 23,010       $ 18,606   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Aquired loans:

                 

Commercial loans

     —         $ —         $ —           —         $ —         $ —     

Residential mortgage loans

     —           —           —           —           —           —     

Consumer loans

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

     —         $ —         $ —           —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Covered loans:

                 

Commercial loans

     —         $ —         $ —           —         $ —         $ —     

Residential mortgage loans

     —           —           —           —           —           —     

Consumer loans

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     —         $ —         $ —           —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

                 

Commercial loans

     22       $ 23,050       $ 18,349         17       $ 21,668       $ 17,288   

Residential mortgage loans

     3         1,169         1,169         3         1,342         1,318   

Consumer loans

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

     25       $ 24,219       $ 19,518         20       $ 23,010       $ 18,606   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

The following table presents impaired loans disaggregated by class at June 30, 2012 and December 31, 2011:

 

      Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
June 30, 2012                  (In thousands)                

Originated loans:

              

With no related allowance recorded:

              

Commercial

   $ 14,653       $ 27,849       $ —         $ 11,985       $ 141   

Residential mortgages

     2,239         3,967         —           1,541         9   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     16,892         31,816         —           13,526         150   

With an allowance recorded:

              

Commercial

     39,397         48,665         8,076         36,450         385   

Residential mortgages

     9,389         11,530         1,916         6,382         47   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     48,786         60,195         9,992         42,832         432   

Total:

              

Commercial

     54,050         76,514         8,076         48,435         526   

Residential mortgages

     11,628         15,497         1,916         7,923         56   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 65,678       $ 92,011       $ 9,992       $ 56,358       $ 582   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Covered loans:

              

With no related allowance recorded:

              

Commercial

     —           —           —           —           —     

Residential mortgages

     —           —           —           —           —     

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

Commercial

     5,781         13,182         —           16,409         —     

Residential mortgages

     393         481         —           718         —     

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     6,174         13,663         —           17,127         —     

Total:

              

Commercial

     5,781         13,182         —           16,409         —     

Residential mortgages

     393         481         —           718         —     

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 6,174       $ 13,663       $ —         $ 17,127       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

              

With no related allowance recorded:

              

Commercial

     14,653         27,849         —           11,985         141   

Residential mortgages

     2,239         3,967         —           1,541         9   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     16,892         31,816         —           13,526         150   

With an allowance recorded:

              

Commercial

     45,178         61,847         8,076         52,859         385   

Residential mortgages

     9,782         12,011         1,916         7,100         47   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     54,960         73,858         9,992         59,959         432   

Total:

              

Commercial

     59,831         89,696         8,076         64,844         526   

Residential mortgages

     12,021         15,978         1,916         8,641         56   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 71,852       $ 105,674       $ 9,992       $ 73,485       $ 582   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

 

4. Loans and Allowance for Loan Losses (continued)

 

            Unpaid             Average      Interest  
     Recorded      Principal      Related      Recorded      Income  
     Investment      Balance      Allowance      Investment      Recognized  
December 31, 2011    (In thousands)  

Originated loans:

              

With no related allowance recorded:

              

Commercial

   $ 10,177       $ 24,935       $ —         $ 13,992       $ 359   

Residential mortgages

     1,153         1,957         —           1,087         58   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     11,330         26,892         —           15,079         417   

With an allowance recorded:

              

Commercial

     28,034         33,168         6,988         31,959         254   

Residential mortgages

     4,090         5,360         551         5,007         7   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     32,124         38,528         7,539         36,966         261   

Total:

              

Commercial

     38,211         58,103         6,988         45,951         613   

Residential mortgages

     5,243         7,317         551         6,094         65   

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 43,454       $ 65,420       $ 7,539       $ 52,045       $ 678   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Covered loans:

              

With no related allowance recorded:

              

Commercial

     17,874         21,757         —           4,469         —     

Residential mortgages

     429         845         —           1,847         —     

Direct consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     18,303         22,602         —           6,316         —     

With an allowance recorded:

              

Commercial

     335         335         9         27,765         —     

Residential mortgages

     208         228         19         52         —     

Direct consumer

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     543         563         28         27,817         —     

Total:

              

Commercial

     18,209         22,092         9