4. Loans and Allowance for Loan Losses

Loans, net of unearned income, totaled $11.1 billion at March 31, 2012 compared to $11.2 billion at December 31, 2011. Originated loans totaled $5.5 billion at March 31, 2012 compared to $4.9 billion at December 31, 2011. Originated loans include loans from legacy Hancock and loans newly originated from legacy Whitney locations. Acquired loans totaled $5.0 billion at March 31, 2012 compared to $5.6 billion at December 31, 2011. Acquired loans are those purchased in the Whitney acquisition on June 4, 2011. Covered loans totaled $633.8 million at March 31, 2012 compared to $671.4 million at December 31, 2011. Covered loans refer to loans 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:


	March 31, 2012		December 31, 2011
	(In thousands)
Originated loans:
Commerical	$	1,666,845	$	1,525,409
Construction		639,217		540,806
Real estate		1,396,466		1,259,757
Residential mortgage loans		564,218		487,147
Consumer loans		1,184,261		1,074,611

Total originated loans	$	5,451,007	$	4,887,730

Acquired loans:
Commerical	$	2,045,474	$	2,236,758
Construction		524,570		603,371
Real estate		1,495,280		1,656,515
Residential mortgage loans		671,275		734,669
Consumer loans		308,883		386,540

Total acquired loans	$	5,045,482	$	5,617,853

Covered loans:
Commerical	$	42,273	$	38,063
Construction		121,427		118,828
Real estate		60,823		82,651
Residential mortgage loans		275,856		285,682
Consumer loans		133,405		146,219

Total covered loans	$	633,784	$	671,443

Total loans:
Commerical	$	3,754,592	$	3,800,230
Construction		1,285,214		1,263,005
Real estate		2,952,569		2,998,923
Residential mortgage loans		1,511,349		1,507,498
Consumer loans		1,626,549		1,607,370

Total loans	$	11,130,273	$	11,177,026

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 a 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.

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.

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, construction and real estate loans categories shown in previous table.

The following schedule shows activity in the allowance for loan losses, by portfolio segment and the related corresponding recorded investment in loans, for the three months ended March 31, 2012 and March 31, 2011:


	Commercial			Residential mortgages			Consumer			Total
(In thousands)	March 31, 2012
Allowance for loan losses:
Beginning balance	$	78,414		$	13,918		$	32,549		$	124,881
Charge-offs		(24,919	)		(1,118	)		(3,578	)		(29,615	)
Recoveries		4,212			397			1,523			6,132
Net provision for loan losses (a)		10,473			3,639			(4,097	)		10,015
Increase in indemnification asset (a)		15,758			12,397			2,769			30,924

Ending balance	$	83,938		$	29,233		$	29,166		$	142,337

Ending balances:
Individually evaluated for impairment	$	10,634		$	565		$	—		$	11,199
Collectively evaluated for impairment	$	73,304		$	28,668		$	29,166		$	131,138
Covered loans with deteriorated credit quality	$	18,446		$	22,074		$	17,322		$	57,842
Loans:
Ending balances:
Total	$	7,992,375		$	1,511,349		$	1,626,549		$	11,130,273
Individually evaluated for impairment	$	48,338		$	8,084		$	—		$	56,422
Collectively evaluated for impairment	$	7,719,514		$	1,227,409		$	1,493,144		$	10,440,067
Covered loans	$	224,523		$	275,856		$	133,405		$	633,784
Acquired loans (b)	$	4,065,324		$	671,275		$	308,883		$	5,045,482

(a)	The Company increased the allowance by $32.6 million for losses related to impairment on certain pools of covered loans. This provision was mostly offset by a $30.9 million increase in the FDIC indemnification asset.

(b)	Acquired loans were recorded at fair value with no allowance brought forward in accordance with acquisition accounting. There has been no allowance since acquisition.


	Commercial			Residential mortgages			Consumer			Total
(In thousands)	March 31, 2011
Allowance for loan losses:
Beginning balance	$	56,859		$	4,626		$	20,512		$	81,997
Charge-offs		(4,754	)		(1,142	)		(3,183	)		(9,079	)
Recoveries		574			771			917			2,262
Net provision for loan losses (a)		6,837			687			1,298			8,822
Increase in indemnification asset (a)		10,354			—			—			10,354

Ending balance	$	69,870		$	4,942		$	19,544		$	94,356

Ending balances:
Total	$	10,627		$	1,310		$	—		$	11,937
Collectively evaluated for impairment	$	59,243		$	3,632		$	19,544		$	82,419
Covered loans with deteriorated credit quality	$	10,899		$	—		$	—		$	10,899
Loans:
Ending balance:	$	3,089,365		$	630,092		$	1,121,518		$	4,840,975
Individually evaluated for impairment	$	53,093		$	6,258		$	—		$	59,351
Collectively evaluated for impairment	$	2,673,605		$	353,793		$	977,132		$	4,004,530
Covered loans	$	362,667		$	270,041		$	144,386		$	777,094

(a)	The Company increased the allowance by $10.9 million for losses related to impairment on certain pools of covered loans. This provision was mostly offset by a $10.4 million increase in the FDIC indemnification asset.

The following table shows the composition of non-accrual loans by portfolio segment and class. Covered and acquired loans are considered to be performing due to the application of the accretion method and are excluded from the table. Certain covered loans accounted for using the cost recovery method do not have an accretable yield and are disclosed below as non-accrual loans.


	March 31,		December 31,
	2012		2011
	(In thousands)
Originated loans:
Commercial loans	$	77,237	$	55,046
Residential mortgage loans		24,253		24,406
Consumer loans		3,883		3,855

Total originated loans	$	105,373	$	83,307

Acquired loans:
Commercial loans	$	284	$	—
Residential mortgage loans		1,251		—
Consumer loans		274		1,117

Total acquired loans	$	1,809	$	1,117

Covered loans:
Commercial loans	$	8,774	$	18,209
Residential mortgage loans		603		637
Consumer loans		—		—

Total covered loans	$	9,377	$	18,846

Total loans:
Commercial loans	$	86,295	$	73,255
Residential mortgage loans		26,107		25,043
Consumer loans		4,157		4,972

Total loans	$	116,559	$	103,270

The amount of interest that would have been recorded on nonaccrual loans for the three months ended March 31, 2012 was approximately $1.7 million. Interest actually received on nonaccrual loans during the three months ended March 31, 2012 was $0.5 million.

The table below details the troubled debt restructurings (TDR) that occurred during the current and prior year quarter 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.


			March 31, 2012						March 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		30	$	21,770	$	18,165		15	$	20,694	$	18,431
Mortgage real estate		4		1,879		1,761		3		1,342		1,326

Total		34	$	23,649	$	19,926		18	$	22,036	$	19,757

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


March 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
			(In thousands)
Total loans:
With no related allowance recorded:
Commercial	$	8,821	$	21,651	$	—	$	16,030	$	24
Residential mortgages		1,540		3,087		—		2,316		—
Consumer		—		—		—		—		—

		10,361		24,738		—		18,346		24
With an allowance recorded:
Commercial		57,112		79,203		10,634		55,102		179
Residential mortgages		8,687		10,723		565		5,917		32
Consumer		—		—		—		—		—

		65,799		89,926		11,199		61,019		211
Total:
Commercial		65,933		100,854		10,634		71,132		203
Residential mortgages		10,227		13,810		565		8,233		32
Consumer		—		—		—		—		—

Total loans	$	76,160	$	114,664	$	11,199	$	79,365	$	235


December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
			(In thousands)
Total loans:
With no related allowance recorded:
Commercial	$	28,051	$	46,692	$	—	$	18,461	$	359
Residential mortgages		1,582		2,802		—		2,934		58
Consumer		—		—		—		—		—

		29,633		49,494		—		21,395		417
With an allowance recorded:
Commercial		28,369		33,503		6,997		59,724		254
Residential mortgages		4,298		5,588		570		5,059		7
Consumer		—		—		—		—		—

		32,667		39,091		7,567		64,783		261
Total:
Commercial		56,420		80,195		6,997		78,185		613
Residential mortgages		5,880		8,390		570		7,993		65
Consumer		—		—		—		—		—

Total loans	$	62,300	$	88,585	$	7,567	$	86,178	$	678

Covered and acquired loans with an accretable yield are considered to be current in the following table. Certain covered loans accounted for using the cost recovery method are disclosed according to their contractual payment status below. The following table presents the age analysis of past due loans.


March 31, 2012	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)
Originated loans:
Commercial loans	$	20,153	$	79,222	$	99,375	$	3,603,153	$	3,702,528	$	1,983
Residential mortgages loans		19,161		24,636		43,797		520,421		564,218		383
Consumer loans		3,818		4,040		7,858		1,176,403		1,184,261		158

Total	$	43,132	$	107,898	$	151,030	$	5,299,977	$	5,451,007	$	2,524

Acquired loans:
Commercial loans	$	338	$	305	$	643	$	4,064,681	$	4,065,324	$	21
Residential mortgages loans		4,696		2,450		7,146		664,129		671,275		1,199
Consumer loans		310		309		619		308,264		308,883		36

Total	$	5,344	$	3,064	$	8,408	$	5,037,074	$	5,045,482	$	1,256

Covered loans:
Commercial loans	$	—	$	8,774	$	8,774	$	215,749	$	224,523	$	—
Residential mortgages loans		—		603		603		275,253		275,856		—
Consumer loans		—		—		—		133,405		133,405		—

Total	$	—	$	9,377	$	9,377	$	624,407	$	633,784	$	—

Total loans:
Commercial loans	$	20,491	$	88,301	$	108,792	$	7,883,583	$	7,992,375	$	2,004
Residential mortgages loans		23,857		27,689		51,546		1,459,803		1,511,349		1,582
Consumer loans		4,128		4,349		8,477		1,618,072		1,626,549		194

Total	$	48,476	$	120,339	$	168,815	$	10,961,458	$	11,130,273	$	3,780


December 31, 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)
Originated loans:
Commercial loans	$	24,939	$	58,867	$	83,806	$	3,242,166	$	3,325,972	$	3,821
Residential mortgages loans		22,248		25,400		47,648		439,499		487,147		994
Consumer loans		4,284		3,911		8,195		1,066,416		1,074,611		56

Total	$	51,471	$	88,178	$	139,649	$	4,748,081	$	4,887,730	$	4,871

Acquired loans:
Commercial loans	$	—	$	—	$	—	$	4,496,644	$	4,496,644	$	—
Residential mortgages loans		—		—		—		734,669		734,669		—
Consumer loans		2,128		2,126		4,254		382,286		386,540		1,009

Total	$	2,128	$	2,126	$	4,254	$	5,613,599	$	5,617,853	$	1,009

Covered loans:
Commercial loans	$	—	$	18,209	$	18,209	$	221,333	$	239,542	$	—
Residential mortgages loans		—		637		637		285,045		285,682		—
Consumer loans		—		—		—		146,219		146,219		—

Total	$	—	$	18,846	$	18,846	$	652,597	$	671,443	$	—

Total loans:
Commercial loans	$	24,939	$	77,076	$	102,015	$	7,960,143	$	8,062,158	$	3,821
Residential mortgages loans		22,248		26,037		48,285		1,459,213		1,507,498		994
Consumer loans		6,412		6,037		12,449		1,594,921		1,607,370		1,065

Total	$	53,599	$	109,150	$	162,749	$	11,014,277	$	11,177,026	$	5,880

The following table presents the credit quality indicators of the Company's various classes of loans at March 31, 2012 and December 31, 2011. December 31, 2011 commercial-originated and commercial-acquired, pass and substandard grades, were restated due to the correction of a misclassification. Commercial-originated pass was overstated with commercial-originated substandard understated by $91.6 million. Commercial-acquired pass was understated and commercial-acquired substandard was overstated by the same amount.

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade


	March 31, 2012								December 31, 2011
	Commercial - originated		Commercial - acquired		Commercial - covered		Total commercial		Commercial - originated		Commercial - acquired		Commercial - covered		Total commercial
	(In thousands)								(In thousands)
Grade:
Pass	$	3,345,698	$	3,605,255	$	14,209	$	6,965,162	$	3,019,100	$	3,974,463	$	16,843	$	7,010,406
Pass-Watch		130,717		65,892		31,560		228,169		76,393		60,042		13,606		150,041
Special Mention		21,119		101,454		7,284		129,857		35,155		125,852		9,368		170,375
Substandard		204,312		292,126		116,703		613,141		194,900		334,357		124,371		653,628
Doubtful		682		597		54,767		56,046		424		1,930		75,242		77,596
Loss		—		—		—		—		—		—		112		112

Total	$	3,702,528	$	4,065,324	$	224,523	$	7,992,375	$	3,325,972	$	4,496,644	$	239,542	$	8,062,158

Residential Mortgage Credit Exposure

Credit Risk Profile by Internally Assigned Grade


	March 31, 2012								December 31, 2011
	Residential mortgages - originated		Residential mortgages - acquired		Residential mortgages - covered		Total residential mortgages		Residential mortgages - originated		Residential mortgages - acquired		Residential mortgages - covered		Total residential mortgages
	(In thousands)								(In thousands)
Grade:
Pass	$	538,782	$	608,321	$	146,077	$	1,293,180	$	460,261	$	673,751	$	120,180	$	1,254,192
Pass-Watch		3,816		3,289		16,577		23,682		7,499		1,773		18,133		27,405
Special Mention		1,206		6,230		2,057		9,493		542		9,686		3,286		13,514
Substandard		20,414		53,314		110,702		184,430		18,845		48,581		139,643		207,069
Doubtful		—		121		443		564		—		878		4,440		5,318
Loss		—		—		—		—		—		—		—		—

Total	$	564,218	$	671,275	$	275,856	$	1,511,349	$	487,147	$	734,669	$	285,682	$	1,507,498

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity


	March 31, 2012								December 31, 2011
	Consumer - originated		Consumer - acquired		Consumer - covered		Total Consumer		Consumer - originated		Consumer - acquired		Consumer - covered		Total Consumer
	(In thousands)								(In thousands)
Performing	$	1,180,378	$	308,609	$	133,405	$	1,622,392	$	1,070,756	$	385,423	$	146,219	$	1,602,398
Nonperforming		3,883		274		—		4,157		3,855		1,117		—		4,972

Total	$	1,184,261	$	308,883	$	133,405	$	1,626,549	$	1,074,611	$	386,540	$	146,219	$	1,607,370

All loans are reviewed periodically over the course of the year. Each Bank's portfolio of loan relationships aggregating $500,000 or more is reviewed every 12 to 18 months by the Bank's Loan Review staff with other loans also periodically reviewed.

Commercial:

•

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

•

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

•

Special Mention - 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.

•

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 highly questionable or improbable.

•

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

Consumer:

•

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 $42.5 million and $72.4 million, respectively, in loans held for sale at March 31, 2012 and December 31, 2011. Of the $42.5 million, $9.3 million are problem commercial loans held for sale. The remainder of $33.2 million represents mortgage loans originated for sale, which are carried at the lower of cost or estimated fair value. Residential mortgage loans 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.

Changes in the carrying amount of acquired impaired loans and accretable yield are presented in the following table:


	March 31, 2012												December 31, 2011
	Covered						Non-covered						Covered						Non-covered
	Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield
(In thousands)
Balance at beginning of period	$	671,443		$	153,137		$	339,452		$	130,691		$	809,459		$	107,638		$	—		$	—
Additions		—			—			—			—			—			—			535,489			132,136
Payments received, net		(107,893	)		—			(40,083	)		—			(193,432	)		—			(206,306	)		—
Accretion		12,392			(12,392	)		8,000			(8,000	)		55,416			(55,416	)		10,269			(22,719	)
Decrease in expected cash flows based on actual cash flow and changes in cash flow assumptions		—			(1,542	)		—			(18,609	)		—			(18,930	)		—			(26,630	)
Net transfers from (to) nonaccretable difference to accretable yield		—			(17,014	)		—			15,501			—			119,845			—			47,904

Balance at end of period	$	575,942		$	122,189		$	307,369		$	119,583		$	671,443		$	153,137		$	339,452		$	130,691