Share-Based Payment Arrangements

9 Months Ended

Sep. 30, 2012

Share-Based Payment Arrangements

7. Share-Based Payment Arrangements

Stock Option Plans

Hancock maintains incentive compensation plans that provide for awards of share-based compensation for employees and directors. These plans have been approved by the Company’s shareholders. Detailed descriptions of these plans were included in Note 13 to the consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2011.

A summary of option activity for the nine months ended September 30, 2012 is presented below:

Options	Number of Shares			Weighted- Average Exercise Price ($)		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2012		1,686,907		$	41.05
Granted		152,140			29.73
Exercised		(41,099	)		22.33
Forfeited or expired		(199,299	)		57.67
Outstanding at September 30, 2012		1,598,649		$	38.38		5.4	$	977
Exercisable at September 30, 2012		955,215		$	42.29		3.4	$	584

152,140 stock options were granted on May 24, 2012 with a fair value on the grant date of $8.43 per share. The fair value of each option award was estimated as of the grant date using the Black-Scholes-Merton option-pricing model. The significant assumptions made in applying the option-pricing model are noted in the following table. Expected volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock and other factors. The expected term of options granted was derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of the grant.

Expected volatility	38.64	%
Dividend yield	3.23	%
Expected term	6.58 years
Risk-free interest rate	1.78	%

The total intrinsic value of options exercised during the nine months ended September 30, 2012 and 2011 was $0.5 million and $0.1 million, respectively.

A summary of the status of the Company’s nonvested restricted share awards as of September 30, 2012, and changes during the nine months ended September 30, 2012, is presented below. These restricted shares are subject to service requirements.

	Number of Shares			Weighted- Average Grant-Date Fair Value ($)
Nonvested at January 1, 2012		1,460,776		$	25.66
Granted		536,252			23.51
Vested		(28,032	)		40.54
Forfeited		(91,204	)		30.03
Nonvested at September 30, 2012		1,877,792		$	24.62

Hancock also makes annual grants of performance stock to key members of executive and senior management. On January 26, 2012, Hancock granted a target award of 14,858 performance shares and on May 24, 2012, Hancock granted a target award of 12,939 performance shares with a fair value on the grant date of $36.16 per share. The number of 2012 performance shares that ultimately vest at the end of the three-year required service period will be based on the relative rank of Hancock’s three-year total shareholder return (TSR) among the TSRs of a peer group of fifty regional banks. The maximum number of performance shares that could vest is 200% of the target award. The fair value of this award at the grant date was determined using a Monte Carlo simulation method. Compensation expense for these performance shares will be recognized on a straight-line basis over the service period.

As of September 30, 2012, there was $30.4 million of total unrecognized compensation expense related to nonvested restricted shares and performance shares. This compensation is expected to be recognized in expense over a weighted-average period of 3.3 years. The total fair value of restricted shares which vested during the nine months ended September 30, 2012 and 2011 was $0.9 million and $8.0 million, respectively.