7. Loans and Allowance for Loan Losses

Loans, net of unearned income, totaled $11.2 billion at June 30, 2011 compared to $5.0 billion at December 31, 2010. The increase reflects the addition of loans from the Whitney acquisition. Covered loans totaled $747.8 million at June 30, 2011 compared to $809.2 million at December 31, 2010. Covered loans refer to loans we acquired in the Peoples First FDIC-assisted transaction that are subject to loss-sharing agreements with the FDIC.

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


	June 30,		December 31,
	2011		2010
	( In thousands)
Commercial loans:
Commercial - originated	$	605,885	$	524,653
Commercial - acquired		2,424,887		—
Commercial - covered		45,959		34,650

Total commercial		3,076,731		559,303

Construction - originated		476,711		495,590
Construction - acquired		741,151		—
Construction - covered		153,489		157,267

Total construction		1,371,351		652,857

Real estate - originated		1,232,144		1,231,414
Real estate - acquired		1,861,373		—
Real estate - covered		147,520		181,873

Total real estate		3,241,037		1,413,287

Municipal loans - originated		485,233		471,057
Municipal loans - acquired		12,712		—
Municipal loans - covered		473		540

Total municipal loans		498,418		471,597

Lease financing - originated		45,982		50,721
Total commercial loans - originated		2,845,955		2,773,435
Total commercial loans - acquired		5,040,123		—
Total commercial loans - covered		347,441		374,330

Total commercial loans		8,233,519		3,147,765

Residential mortgage loans - originated		365,661		366,183
Residential mortgage loans - acquired		830,667		—
Residential mortgage loans - covered		247,489		293,506

Total residential mortgage loans		1,443,817		659,689

Indirect consumer loans - originated		278,261		309,454
Direct consumer loans - originated		597,593		597,947
Direct consumer loans - acquired		447,096		—
Direct consumer loans - covered		152,879		141,315

Total direct consumer loans		1,197,568		739,262

Finance Company loans - originated		95,888		100,994

Total originated loans		4,183,358		4,148,013
Total acquired loans		6,317,886		—
Total covered loans		747,809		809,151

Total loans	$	11,249,053	$	4,957,164

Originated - Loans which have been originated in the normal course of business.

Acquired - Loans which have been acquired and no allowance brought forward in accordance with acquisition accounting.

Covered - Loans which are covered by loss sharing agreements with the FDIC providing considerable protection against credit risk.

Changes in the carrying amount of acquired loans and accretable yield for loans receivable at June 30, 2011 are presented in the following table (in thousands):


	June 30, 2011												June 30, 2010
	Covered						Non-covered						Covered						Non-covered
	Carrying			Net			Carrying			Net			Carrying			Net			Carrying		Net
	Amount			Accretable			Amount			Accretable			Amount			Accretable			Amount		Accretable
	of Loans *			Discount			of Loans *			Discount			of Loans *			Discount			of Loans *		Discount
Six Months Ended
(In thousands)
Balance at beginning of period	$	809,459		$	107,638		$	—		$	—		$	950,430		$	315,782		$	—	$	—
Additions								536,833			94,733			—			—			—		—
Payments received, net		(87,736	)		—			(23,778	)					(112,894	)		—			—		—
Accretion		26,834			(26,834	)		3,140			(3,140	)		30,107			(30,107	)		—		—

Balance at end of period	$	748,557		$	80,804		$	516,195		$	91,593		$	867,643		$	285,675		$	—	$	—

*	Excludes covered credit card loans and mortgage loans held for sale

The carrying value of acquired impaired loans with deterioration of credit quality accounted for using the cost recovery method was $39.5 million at June 30, 2011, and $45.3 million at December 31, 2010. Each of these loans is on nonaccrual status. Acquired impaired loans with deterioration of credit quality that have an accretable difference are not included in nonperforming balances even though the customer may be contractually past due. These loans will accrete interest income over the remaining life of the loan. The Company also recorded a $28.9 million allowance for additional expected losses that have arisen since acquisition of covered loans with a corresponding increase for 95% coverage in our FDIC loss share receivable, which resulted in a net provision for loan loss of $1.4 million during the six months ended June 30, 2011.

The unpaid principal balance for acquired impaired loans was $1,922 million and $1,193 million at June 30, 2011 and December 31, 2010, respectively.

It is the policy of Hancock to promptly charge off commercial, construction, and real estate loans and lease financings, or portions of these loans and leases, when available information reasonably confirms that they are uncollectible. Prior to recognizing a loss, asset value is established by determining the value of the collateral securing the loan, the borrower's and the guarantor's ability and willingness to pay. Consumer loans are generally charged down to the fair value of the collateral less cost to sell when 120 days past due. Loans deemed uncollectible are charged off against the allowance account with subsequent recoveries added back to the allowance when collected.

The following table sets forth, for the periods indicated, allowance for loan losses, amounts charged-off and recoveries of loans previously charged-off:


	Commercial			Residential mortgages			Indirect consumer			Direct consumer			Finance Company			Total
(In thousands)	June 30, 2011
Allowance for loan losses:
Beginning balance	$	56,859		$	4,626		$	2,918		$	9,322		$	8,272		$	81,997
Charge-offs		(13,664	)		(2,332	)		(921	)		(3,069	)		(2,086	)		(22,072	)
Recoveries		4,274			960			519			686			575			7,014
Net Provision for loan losses (a)		11,884			6,449			92			(1,758	)		1,299			17,966
Increase in indemnification asset (a)		19,378			3,864			—			4,260			—			27,502

Ending balance	$	78,731		$	13,567		$	2,608		$	9,441		$	8,060		$	112,407

Ending balance:
Individually evaluated for impairment	$	9,468		$	1,420		$	—		$	—		$	—		$	10,888
Ending balance:
Collectively evaluated for impairment	$	69,263		$	12,147		$	2,608		$	9,441		$	8,060		$	101,519
Ending balance:
Covered loans with deteriorated credit quality	$	20,398		$	4,485		$	—		$	4,364		$	—		$	29,247
Loans:
Ending balance:	$	8,233,519		$	1,443,817		$	278,261		$	1,197,568		$	95,888		$	11,249,053
Ending balance:
Individually evaluated for impairment	$	48,182		$	7,677		$	—		$	—		$	—		$	55,859
Ending balance:
Collectively evaluated for impairment	$	7,837,896		$	1,188,651		$	278,261		$	1,044,689		$	95,888		$	10,445,385
Ending balance:
Covered loans	$	347,441		$	247,489		$	—		$	152,879		$	—		$	747,809
Ending balance:
Acquired loans (b)	$	5,040,123		$	830,667		$	—		$	447,096		$	—		$	6,317,886

(a)

The provision for loan losses is shown "net" after coverage provided by FDIC loss share agreements on covered loans. This results in an increase in the indemnification asset, which is the difference between the provision for loan losses on covered loans of $28,948, and the impairment ($1,446) on those covered loans.

(b)	Acquired loans are recorded at fair value with no allowance brought forward in accordance with acquisition accounting.


				Residential			Indirect			Direct			Finance
	Commercial			mortgages			consumer			consumer			Company			Total
(In thousands)	June 30, 2010
Allowance for loan losses:
Beginning balance	$	42,484		$	4,782		$	3,826		$	7,145		$	7,813		$	66,050
Charge-offs		(21,886	)		(1,322	)		(1,594	)		(2,538	)		(2,818	)		(30,158	)
Recoveries		1,111			145			537			689			504			2,986
Net Provision for loan losses		32,322			1,453			483			1,334			2,751			38,343

Ending balance	$	54,031		$	5,058		$	3,252		$	6,630		$	8,250		$	77,221

Ending balance:
Individually evaluated for impairment	$	11,145		$	828		$	—		$	—		$	—		$	11,973
Ending balance:
Collectively evaluated for impairment	$	42,886		$	4,230		$	3,252		$	6,630		$	8,250		$	65,248
Ending balance:
Covered loans with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—
Loans:
Ending balance:	$	3,042,654		$	751,259		$	329,658		$	743,118		$	105,513		$	4,972,202
Ending balance:
Individually evaluated for impairment	$	69,771		$	4,722		$	—		$	—		$	—		$	74,493
Ending balance:
Collectively evaluated for impairment	$	2,604,343		$	442,643		$	329,658		$	558,785		$	105,513		$	4,040,942
Ending balance:
Covered loans	$	368,540		$	303,894		$	—		$	184,333		$	—		$	856,767

In some instances, loans are placed on nonaccrual status. All accrued but uncollected interest related to the loan is deducted from income in the period the loan is assigned a nonaccrual status. For such period as a loan is in nonaccrual status, any cash receipts are applied first to principal, second to expenses incurred to cause payment to be made and lastly to the recovery of any reversed interest income and interest that would be due and owing subsequent to the loan being placed on nonaccrual status for all classes of financing receivables. Covered and acquired loans accounted for in accordance with ASC 310-30 are considered to be performing due to the application of the accretion method. These loans are excluded from the table due to their performing status. Certain covered loans accounted for using the cost recovery method or in accordance with ASC 310-20 are disclosed as non-accrual loans below. A reserve is recorded when estimated losses are in excess of the net purchase accounting marks. Loans under ASC 310-20 have accretable interest income over the life based on contractual payments receivable. The following table shows the composition of non-accrual loans by portfolio segment:


	June 30,		December 31,
	2011		2010
	(In thousands)
Commercial - originated	$	37,597	$	41,667
Commercial - restructured		8,410		8,712
Commercial - covered		33,869		41,917
Residential mortgages - originated		27,412		18,699
Residential mortgages - covered		2,710		3,199
Indirect consumer - originated		—		—
Direct consumer - originated		1,937		4,862
Direct consumer - acquired		1,504		—
Direct consumer - covered		2,935		170
Finance Company - originated		1,271		1,759

Total	$	117,645	$	120,985

Included in nonaccrual loans is $8.4 million in restructured commercial loans. Total troubled debt restructurings as of June 30, 2011 were $18.6 million. Loan restructurings occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and, consequently, a modification that would otherwise not be considered is granted to the borrower. The concessions involve paying interest only for a period of 6 to 12 months. Hancock does not typically lower the interest rate or forgive principal or interest as part of the loan modification. There have been no commitments to lend additional funds to any borrowers whose loans have been restructured. Troubled debt restructurings can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing to accrue, depending on the individual facts and circumstances of the borrower. The evaluation of the borrower's financial condition and prospects include consideration of the borrower's sustained historical repayment performance for a reasonable period prior to the date on which the loan is returned to accrual status. A sustained period of repayment performance generally would be a minimum of six months and would involve payments of cash or cash equivalents. If the borrower's ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a nonaccrual loan.

The Company's investments in impaired loans at June 30, 2011 and December 31, 2010 were $95.4 million and $107.7 million, respectively. The amount of interest that would have been recognized on nonaccrual loans for the three and six months ended June 30, 2011 was approximately $1.5 million and $2.9 million, respectively. Interest recovered on nonaccrual loans that were recorded in net income for the three and six months ended June 30, 2011 was $0.2 million and $0.7 million, respectively.

The following table presents impaired loans disaggregated by class at June 30, 2011 and December 31, 2010:


June 30, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
			(In thousands)
With no related allowance recorded:
Commercial - originated	$	12,959	$	12,959	$	—	$	18,048	$	70
Residential mortgages - originated		962		962		—		1,075		—
Residential mortgages - covered		2,710		2,710		—		2,974		—
Direct consumer - covered		2,935		2,935		—		2,189		—

		19,566		19,566		—		24,286		70
With an allowance recorded:
Commercial - originated		35,223		35,223		9,468		34,656		400
Commercial - covered		33,869		33,869		10,900		37,792		—
Residential mortgages - originated		6,715		6,715		1,420		5,443		59

		75,807		75,807		21,788		77,891		459
Total:
Commercial - originated		48,182		48,182		9,468		52,704		470
Commercial - covered		33,869		33,869		10,900		37,792		—
Residential mortgages - originated		7,677		7,677		1,420		6,518		59
Residential mortgages - covered		2,710		2,710		—		2,974		—
Direct consumer - covered		2,935		2,935		—		2,189		—

Total	$	95,373	$	95,373	$	21,788	$	102,177	$	529


December 31, 2010	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
			(In thousands)
With no related allowance recorded:
Commercial	$	22,641	$	22,641	$	—	$	26,472	$	224
Commercial - covered		41,917		41,917		—		49,070		—
Residential mortgages		1,263		1,263		—		1,601		26
Residential mortgages - covered		3,199		3,199		—		3,631		—
Direct consumer - covered		170		170		—		184		—

		69,190		69,190		—		80,958		250
With an allowance recorded:
Commercial		34,194		34,194		10,648		36,650		523
Residential mortgages		4,355		4,355		1,304		4,358		88

		38,549		38,549		11,952		41,008		611
Total:
Commercial		56,835		56,835		10,648		63,122		747
Commercial - covered		41,917		41,917		—		49,070		—
Residential mortgages		5,618		5,618		1,304		5,959		114
Residential mortgages - covered		3,199		3,199		—		3,631		—
Direct consumer - covered		170		170		—		184		—

Total	$	107,739	$	107,739	$	11,952	$	121,966	$	861

Accruing loans 90 days past due as a percent of loans was 0.04% and 0.03% at June 30, 2011 and December 31, 2010, respectively. Loans for the acquired portfolio are now accounted for under acquisition accounting and are considered performing. Covered and required loans accounted for in accordance with ASC 310-30 are considered to be performing due to the application of the accretion method. These loans are excluded from the table due to their performing status. Certain covered loans accounted for using the cost recovery method or acquired loans accounted for in accordance with ASC 310-20 are disclosed as non-current loans below. The following table presents the age analysis of past due loans at June 30, 2011 and December 31, 2010:


June 30, 2011	30-89 days past due		Greater than 90 days past due		Total past due		Current		Total Loans		Recorded investment > 90 days and accruing
	(In thousands)
Commercial - originated	$	12,600	$	39,506	$	52,106	$	2,775,243	$	2,827,349	$	1,909
Commercial - restructured		—		8,410		8,410		10,196		18,606		—
Commercial - acquired		—		—		—		5,040,123		5,040,123		—
Commercial - covered		—		33,869		33,869		313,572		347,441		—
Residential mortgages - originated		21,481		27,942		49,423		316,238		365,661		530
Residential mortgages - acquired		—		—		—		830,667		830,667		—
Residential mortgages - covered		—		2,710		2,710		244,779		247,489		—
Indirect consumer - originated		—		—		—		278,261		278,261		—
Direct consumer - originated		2,311		2,002		4,313		593,280		597,593		65
Direct consumer - acquired		1,776		3,057		4,833		442,263		447,096		1,553
Direct consumer - covered		—		2,935		2,935		149,944		152,879		—
Finance Company		2,740		1,271		4,011		91,877		95,888		—

Total	$	40,908	$	121,702	$	162,610	$	11,086,443	$	11,249,053	$	4,057


December 31, 2010	30-89 days past due		Greater than 90 days past due		Total past due		Current		Total Loans		Recorded investment > 90 days and accruing
	(In thousands)
Commercial	$	12,463	$	41,967	$	54,430	$	2,706,363	$	2,760,793	$	300
Commercial - restructured		—		8,712		8,712		3,929		12,641		—
Commercial - covered		—		41,917		41,917		332,414		374,331		—
Residential mortgages		22,109		19,573		41,682		324,502		366,184		874
Residential mortgages - covered		—		3,199		3,199		290,306		293,505		—
Indirect consumer		—		—		—		309,454		309,454		—
Direct consumer		4,488		5,180		9,668		588,279		597,947		318
Direct consumer - covered		—		170		170		141,145		141,315		—
Finance Company		2,011		1,759		3,770		97,224		100,994		—

Total	$	41,071	$	122,477	$	163,548	$	4,793,616	$	4,957,164	$	1,492

The following table presents the credit quality indicators of the Company's various classes of loans at June 30, 2011 and December 31, 2010:

Commercial credit exposure

Credit risk profile by creditworthiness category


	June 30, 2011								December 31, 2010
	Commercial - originated		Commercial - acquired		Commercial - covered		Total commercial		Commercial - originated		Commercial - covered		Total commercial
	(In thousands)								(In thousands)
Grade:
Pass	$	2,419,097	$	4,205,394	$	37,910	$	6,662,401	$	2,332,952	$	45,609	$	2,378,561
Pass-Watch		102,524		—		24,998		127,522		138,839		35,289		174,128
Special Mention		15,887		145,666		14,265		175,818		26,216		21,031		47,247
Substandard		245,407		685,878		134,788		1,066,073		265,180		254,033		519,213
Doubtful		63,040		3,185		135,480		201,705		10,247		18,369		28,616
Loss		—		—		—		—		—		—		—

Total	$	2,845,955	$	5,040,123	$	347,441	$	8,233,519	$	2,773,434	$	374,331	$	3,147,765

Residential mortgage credit exposure

Credit risk profile by internally assigned grade


	June 30, 2011								December 31, 2010
	Residential mortgages - originated		Residential mortgages - acquired		Residential mortgages - covered		Total residential mortgages		Residential mortgages - originated		Residential mortgages - covered		Total residential mortgages
	(In thousands)								(In thousands)
Grade:
Pass	$	277,441	$	745,537	$	112,434	$	1,135,412	$	284,712	$	159,885	$	444,597
Pass-Watch		6,010		—		21,699		27,709		7,857		29,673		37,530
Special Mention		546		9,856		8,156		18,558		—		15,220		15,220
Substandard		81,664		73,419		96,375		251,458		73,615		87,636		161,251
Doubtful		—		1,824		8,825		10,649		—		1,091		1,091
Loss		—		31		—		31		—		—		—

Total	$	365,661	$	830,667	$	247,489	$	1,443,817	$	366,184	$	293,505	$	659,689

Consumer credit exposure

Credit risk profile based on payment activity


	June 30, 2011
	Direct consumer - originated		Direct consumer - acquired		Direct consumer - covered		Total direct consumer		Indirect consumer		Finance company
	(In thousands)
Performing	$	595,656	$	445,592	$	149,944	$	1,191,192	$	278,261	$	94,617
Nonperforming		1,937		1,504		2,935		6,376		—		1,271

Total	$	597,593	$	447,096	$	152,879	$	1,197,568	$	278,261	$	95,888


	December 31, 2010
	Direct consumer - originated		Direct consumer - covered		Total direct consumer		Indirect consumer		Finance company
	(In thousands)
Performing	$	593,085	$	141,145	$	734,230	$	309,454	$	99,235
Nonperforming		4,862		170		5,032		—		1,759

Total	$	597,947	$	141,315	$	739,262	$	309,454	$	100,994

All loans are reviewed periodically over the course of the year. Lending officers are primarily responsible for ongoing monitoring and the assignment of risk ratings to individual loans based on established guidelines. An independent credit review function assesses the accuracy of officer ratings and the timeliness of rating changes and performs reviews of the underwriting processes.

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

•

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

•

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

•

Special Mention - These credits exhibit some signs of "Watch", but to a greater magnitude. These credits constitute an undue and unwarranted credit risk, but not to a point of justifying a classification of "Substandard". They have weaknesses that, if not checked or corrected, weaken the asset or inadequately protect the bank.

•

Substandard - These credits constitute an unacceptable risk to the bank. They have recognized credit weaknesses that jeopardize the repayment of the debt. Repayment sources are marginal or unclear. Credits that have debt service coverage less than one-to-one (1:1) or are collateral dependent will almost always be accorded this grade.

•

Doubtful - A Doubtful credit has all of the weaknesses inherent in one classified "Substandard" with the added characteristic that weaknesses make collection or liquidation in full questionable or improbable. The possibility of a loss is extremely high.

•

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

•

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

•

Non-performing - A non-performing 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 non-accrual are also non-performing.

The Company held $67.1 million and $21.9 million in loans held for sale at June 30, 2011 and December 31, 2010, respectively, carried at lower of cost or fair value. Of the $67.1 million, $35.9 million are problem commercial loans held for sale. The remainder of $31.2 million is mortgage loans for sale. Gain on the sale of loans totaled $0.05 million and $1.0 million for the six months ended June 30, 2011 and 2010, respectively. Mortgage loans held for sale are originated on a best-efforts basis, whereby a commitment by a third party to purchase the loan has been received concurrent with the Banks' commitment to the borrower to originate the loan.