The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments, currently related to our variable rate borrowing and fixed rate loans. The Company has also entered into interest rate derivative agreements as a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company's assets or liabilities. The Company manages a matched book with respect to its customer derivatives in order to minimize its net risk exposure resulting from such agreements.

The table below presents the fair value (in thousands) of the Company's derivative financial instruments as well as their classification on the Balance Sheet as of September 30, 2011 and December 31, 2010.

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. For hedges of the Company's variable-rate borrowings, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments. As of September 30, 2011, the Company had one interest rate swap with an aggregate notional amount of $140.0 million that was designated as a cash flow hedge associated with the Company's variable-rate borrowing.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income ("AOCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2011, such derivatives were used to hedge the forecasted variable cash outflows associated with existing term loan agreements beginning June 2012. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness was recognized during the three and nine months ended September 30, 2011. The Company did not have any cash flow hedges outstanding at September 30, 2010. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate liabilities. During the next twelve months, the Company estimates that $0.1 million will be reclassified as a decrease to interest expense.

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate derivatives, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. Hancock simultaneously enters into offsetting agreements with unrelated financial institutions, thereby minimizing its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. As of September 30, 2011, the Company had entered into interest rate derivatives, including both customer and offsetting agreements, with an aggregate notional amount of $488.4 million related to this program.

The tables below present the effect of the Company's derivative financial instruments (in thousands) on the income statement for the three and nine months ended September 30, 2011.


Derivatives in FASB ASC 815 Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)										Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)								Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
	Three Months Ended					Nine Months Ended						Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
	30-Sep-11			30-Sep-10		30-Sep-11			30-Sep-10			30-Sep-11		30-Sep-10		30-Sep-11		30-Sep-10			30-Sep-11		30-Sep-10		30-Sep-11		30-Sep-10
Interest Rate Products	$	(455	)	$	—	$	(297	)	$	—	Interest income Other non-interest income	$	—	$	—	$	—	$	—	Other non-interest income	$	—	$	—	$	—	$	—

Total	$	(455	)	$	—	$	(297	)	$	—		$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—


		Amount of Gain or (Loss) Recognized in Income on
		Three Months Ended					Nine Months Ended
Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	30-Sep-11			30-Sep-10		30-Sep-11			30-Sep-10
Interest Rate Products	Other non-interest income	$	(302	)	$	—	$	(266	)	$	—

Total		$	(302	)	$	—	$	(266	)	$	—

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company has agreements with its derivative counterparties that contain provisions that require the Company's debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Company's credit rating is reduced below investment grade then the Company could be forced to terminate its derivatives at the then current fair value.

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well / adequate capitalized institution as well as maintain multiple capital ratios, then the Company could be forced to terminate its derivatives at the then current fair value.

As of September 30, 2011 the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $11.5 million. The Company has minimum collateral posting thresholds with its derivative counterparties and has posted collateral of $11.6 million against its obligations under these agreements. If the Company had breached any of these provisions at September 30, 2011, it could have been required to settle its obligations under the agreements at the termination value.