10-K 1 d837451d10k.htm 10-K 10-K







For the fiscal year ended December 31, 2014.




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, Gulfport, Mississippi   39501   (228) 868-4727
(Address of principal executive offices)   (Zip Code)   Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


(Title of Class)   (Name of Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” 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 Act).    Yes  ¨    No  x

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 20, 2015 was $2.9 billion based upon the closing market price on NASDAQ on June 30, 2014. For purposes of this calculation only, shares held by nonaffiliates are deemed to consist of (a) shares held by all shareholders other than directors and executive officers of the registrant plus (b) shares held by directors and officers as to which beneficial ownership has been disclaimed.

On January 31, 2015, the registrant had 80,436,669 shares of common stock outstanding.


Portions of the definitive proxy statement for our annual meeting of shareholders to be filed with the Securities and Exchange Commission (“SEC” or “The Commission”) are incorporated by reference into Part III of this report.

Hancock Holding Company

Form 10-K






   BUSINESS      1   


   RISK FACTORS      17   




   PROPERTIES      29   






















   OTHER INFORMATION      143   



ITEM 10.


ITEM 11.


ITEM 12.


ITEM 13.


ITEM 14.




ITEM 15.






Hancock Holding Company (which we refer to as Hancock or the Company) is a financial services company that provides a comprehensive network of full-service financial choices to the Gulf South region through its bank subsidiary, Whitney Bank, a Mississippi state bank. Whitney Bank operates under two century-old brands: “Hancock Bank” in Mississippi, Alabama and Florida and “Whitney Bank” in Louisiana and Texas.

Hancock was organized in 1984 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended. In 2002, the Company qualified as a financial holding company giving it broader powers. The corporate headquarters of the Company is in Gulfport, Mississippi.

Prior to March 31, 2014, Hancock was the parent company of two wholly-owned bank subsidiaries, Hancock Bank and Whitney Bank. On March 31, 2014, Hancock consolidated the legal charters of its two subsidiary banks and renamed the consolidated entity Whitney Bank. Whitney Bank continues to do business under the original regional brand names, Hancock Bank and Whitney Bank. Hancock Bank, Whitney Bank, and the recently consolidated Whitney Bank are referred to collectively as the “Bank” throughout this document.

At December 31, 2014, the Company had 3,794 employees on a full-time equivalent basis. Our balance sheet, with $20.7 billion in assets, has grown substantially over the past several years. Historically, our growth was primarily through internal branch expansions into areas of population that were not served by a dominant financial institution and through several small acquisitions. However, the substantial growth we have had in the last several years is primarily attributable to our acquisition of two sizeable institutions, which significantly expanded the geographic scope of the overall organization.



On December 18, 2009, we acquired the assets and assumed the liabilities of Panama City, Florida based Peoples First Community Bank (Peoples First) in a transaction with financial assistance from the Federal Deposit Insurance Corporation (FDIC). This acquisition added approximately $2 billion in assets. The loans from this transaction were covered by two loss share agreements between the FDIC and the Company that provide significant protection against loan losses. At December 31, 2014, $197 million of loans are still covered by one of the loss share agreements.



On June 4, 2011, we acquired all of the outstanding common stock of Whitney Holding Corporation (Whitney), a bank holding company based in New Orleans, Louisiana, in a stock and cash transaction. The acquisition added $11.7 billion in assets, $6.5 billion in loans, and $9.2 billion in deposits.

Our growth since the Whitney acquisition has been organic through the expansion of products that are targeted across the Company’s footprint.


The Bank operates across the Gulf South region comprised of southern Mississippi; southern and central Alabama; southern Louisiana; the northern, central, and panhandle regions of Florida; and Houston, Texas. The Bank offers a broad range of traditional and online community banking services to commercial, small business and retail customers, providing a variety of transaction and savings deposit products, treasury management services, investment brokerage services, secured and unsecured loan products, (including revolving credit facilities), and letters of credit and similar financial guarantees. The Bank also provides trust and investment management services to retirement plans, corporations and individuals.

We also offer other services through several nonbank subsidiaries. Hancock Investment Services, Inc. provides discount investment brokerage services, annuity products, and life insurance. Hancock Insurance Agency provides general insurance agency services, including life and title insurance. Harrison Finance Company



provides consumer financing services. We also have several special purpose subsidiaries that operate and sell certain foreclosed assets. Total revenue from nonbank subsidiaries accounted for less than ten percent of our consolidated revenue in 2014.

In April, 2014, Hancock sold its property and casualty and group benefits lines of business within its subsidiary insurance agencies. Hancock established a referral program through which the Bank can continue providing clients with these services. Although the lines of business divested represented approximately half of the Company’s 2013 insurance revenue, they did not have a material impact on operating results.

Our operating strategy is to provide customers with the financial sophistication and range of products of a regional bank, while successfully retaining the commercial appeal and level of service of a community bank.

The main industries along the Gulf Coast are energy and related service industries, military and government-related facilities, educational and medical complexes, petrochemical industries, port facility activities and transportation and related industries, tourism and related service industries, and the gaming industry.

We will continue to evaluate future acquisition opportunities that have the potential to increase shareholder value. In-market expansion is our first priority. However, we would also consider strategic opportunities in new markets that would expand our geographic and industry diversity, such as Texas locations outside the Houston area and northern Alabama.

Acquisitions and continued organic growth have diversified our sources of revenue and enhanced core deposit funding. Hancock’s size and scale enables us to attract and retain high quality associates. We remain focused on maintaining two hallmarks of our past culture: a strong balance sheet and a commitment to excellent credit quality.

Additional information is available at www.hancockbank.com and www.whitneybank.com.

Loan Production, Underwriting Standards and Credit Review

The Bank’s primary lending focus is to provide commercial, consumer and real estate loans to consumers, to small and middle market businesses, and to corporate clients in the markets served by the Bank. We seek to provide quality loan products that are attractive to the borrower and profitable to Hancock. We look to build strong, profitable client relationships over time and maintain a strong presence and position of influence in the communities we serve. Through our relationship-based approach we have developed a deep knowledge of our customers and the markets in which they operate. The Company continually works to improve the consistency of its lending processes across our banking footprint, to strengthen the underwriting criteria we employ to evaluate new loans and loan renewals, and to diversify our loan portfolio in terms of type, industry and geographical concentration. We believe that these measures better position Hancock to meet the credit needs of businesses and consumers in the markets it serves while it pursues a balanced strategy of loan profitability, loan growth and loan quality.

The following describes the underwriting procedures of the lending function and presents our principal categories of loans. The results of our lending activities and the relative risk of the loan portfolio are discussed in “Part II— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.

The Bank has a set of loan policies, underwriting standards and key underwriting functions designed to achieve a consistent approach. These underwriting standards address:



collateral requirements;



guarantor requirements (including policies on financial statements, tax returns, and guarantees);



requirements regarding appraisals and their review;




loan approval hierarchy;



standard consumer and small business credit scoring underwriting criteria (including credit score thresholds, maximum maturity and amortization, loan-to-value limits, global debt service coverage, and debt to income limits);



commercial real estate and commercial and industrial underwriting guidelines (including minimum debt service coverage ratio, maximum amortization, minimum equity requirements, maximum loan-to-value ratios);



lending limits;



and credit approval authorities.

Additionally, we consistently monitor our loan concentration policy to review limits and manage our exposures within specified concentration tolerances, including those to particular borrowers, foreign entities, industries and property types for commercial real estate. This policy calls for portfolio risk management and reporting, the monitoring of large borrower concentration limits and systematic tracking of large commercial loans and our portfolio mix. We continue to monitor our concentration of commercial real estate and energy-related loans to ensure the mix is consistent with our risk tolerance. The Company defines concentration as the total of funded and unfunded commitments (excluding loans acquired in the People’s First transaction covered under loss-sharing agreements with the FDIC) as a percentage of total Bank capital (as defined for risk-based capital ratios). The Company had the following industry concentrations as of December 31, 2014:



Non-owner occupied commercial real estate — 148%



Mining, Oil and Gas — 146%



Manufacturing — 61%



Construction — 42%



Retail Trade — 41%



Healthcare — 35%



Wholesale Trade — 41%



Transportation and Warehousing — 31%

Our underwriting process is structured to require oversight that is proportional to the size and complexity of the lending relationship. We delegate designated relationship managers and credit officers loan authority that can be utilized to approve credit commitments for a single borrowing relationship. The limit of delegated authority is based upon the experience, skill, and training of the relationship manager or credit officer. Certain types and size of loans and relationships must be approved by either one of the Bank’s centralized underwriting units or the Bank’s executive loan committee.

Loans are underwritten in accordance with the underwriting standards and loan policies of the Bank. Loans are underwritten primarily on the basis of the borrower’s ability to make debt service payments timely, and secondarily on collateral value. Generally, real estate secured loans and mortgage loans are made when the borrower produces evidence of the ability to make debt service timely along with appropriate equity in the property. Appropriate and regulatory compliant third party valuations are required at the time of origination for real estate secured loans.

Loan portfolio data is presented as either originated, acquired, or FDIC acquired loans because these segments use different accounting and allowance methodologies. Loans reported as “originated” include both loans originated for investment and acquired-performing loans where the discount (premium) has been fully amortized (accreted). Loans reported as “acquired” are those purchased in the Whitney acquisition on June 4, 2011. Loans reported as “FDIC acquired” are those purchased in the December 2009 acquisition of Peoples First, which were



covered by loss share agreements between the FDIC and the Company that afford significant loss protection against loan losses from the Peoples First loan portfolio. The non-single family portfolio of the loss share agreement expired on December 31, 2014. Within these categories, we have commercial, residential mortgage and consumer loans.


The Bank offers a variety of commercial loan services to a diversified customer base over a range of industries, including energy, wholesale and retail trade in various durable and nondurable products, manufacturing of such products, marine transportation and maritime construction, financial and professional services, and agricultural production. Commercial loans are categorized as commercial non-real estate, construction and land development, and commercial real estate loans.

Commercial non-real estate loans, both secured and unsecured, are made available to businesses for working capital (including financing of inventory and receivables), business expansion, and the purchase of equipment and machinery. These loans are primarily made based on the identified cash flows of the borrower and, if secured, on the underlying collateral. Most commercial non-real estate loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal or corporate guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

The Bank makes construction and land development loans to builders and real estate developers for the acquisition, development and construction of business and residential-purpose properties. Acquisition and development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of real estate absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally based upon cost estimates and the projected value of the completed project. The Bank monitors the construction process to mitigate or identify risks as they arise. Construction loans often involve the disbursement of substantial funds with repayment largely dependent on the success of the ultimate project. Sources of repayment for these types of construction loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Bank until permanent financing is obtained. These loans are typically closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing to take out the construction loan. The Bank also makes owner occupied loans for the acquisition, development and improvements of real property to commercial customers to be used in their business operations. These loans are underwritten subject to normal commercial and industrial credit standards and are generally subject to project tracking processes, similar to those required for the non-owner occupied loans.

Commercial real estate loans consist of commercial mortgages on both income-producing and owner-occupied properties. We have executed a strategy to increase the proportion of loans secured by owner-occupied properties in recent years and reduce the number of speculative real estate projects. Loans secured by income-producing properties are viewed primarily as cash flow loans and undergo the analysis and underwriting process of a commercial and industrial loan, as well as that of a real estate loan. Repayment of non-owner occupied loans is generally dependent on the successful operation of the income-producing property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Bank’s commercial real estate portfolios are diverse in terms of type and geographic location. We monitor and evaluate commercial real estate loans based on collateral, geography and risk grade criteria. Many of the markets within the footprint have shown signs of improvement in values over the past 12 months. However, commercial real estate lending can represent an area of elevated risk, so we actively monitor this segment of the portfolio.



Residential Mortgage

A portion of the Bank’s lending activities consists of the origination of both fixed-rate and adjustable-rate home loans, although we re-sell most longer-term fixed-rate loans that we originate in the secondary mortgage market on a best-efforts basis. The sale of mortgage loans allows the Bank to manage the interest rate risks related to such lending operations.


Consumer loans include second mortgage home loans, home equity lines of credit and non-residential consumer purpose loans. Non-residential consumer loans include both direct and indirect loans. Direct non-residential consumer loans are made to finance automobiles, recreational vehicles, boats, and other personal (secured and unsecured) and deposit account secured loans. An indirect non-residential loan is automobile financing provided to the consumer through an agreement with automobile dealerships. Consumer loans are attractive because they typically have a shorter term, provide granularity of size for the overall portfolio, and produce a higher overall yield. The Bank also has a small portfolio of credit card receivables issued on the basis of applications received through referrals from the Bank’s branches and other marketing efforts. The Bank approves consumer loans based on employment and financial information submitted by prospective borrowers as well as credit reports collected from various credit agencies. Financial stability and credit history of the borrower are the primary factors the Bank considers in granting such loans. The availability of collateral is also a factor considered in making such loans. The geographic area of the borrower is another consideration, with preference given to borrowers in the Bank’s primary market areas.

A small consumer finance portfolio is maintained by Harrison Finance Company. The portfolio has a higher credit risk profile than the Bank’s consumer portfolio, but carries a higher yield.

Securities Portfolio

Our investment portfolio primarily consists of U.S. agency debt securities, U.S. agency mortgage-related securities and obligations of states and municipalities classified as available for sale and held to maturity. The Company considers the available for sale portfolio as one of its many sources of liquidity available to fund our operations. Investments are made in accordance with an investment policy approved by the Board of Directors. The investment portfolio is tested under multiple stressed interest rate scenarios, the results of which are used to manage our interest rate risk position. The rate scenarios include regulatory and management agreed upon instantaneous and ramped rate movements that may be up to plus 500 basis points. The combined portfolio has a target effective duration of two to five. The effective duration provides a measure of the Company’s portfolio price sensitivity to a 100 bases point change in interest rates.

We also utilize a significant portion of the securities portfolio to secure certain deposits and other liabilities requiring collateralization. However to maintain an adequate level of liquidity, we limit the percentage of securities that can be pledged in order to keep a portion of securities available for sale. The securities portfolio can also be pledged to increase our line of credit availability at the Federal Home Loan Bank of Dallas, although we have not had to do so.

The investments subcommittee of the asset\liability committee (ALCO) is responsible for evaluating issues related to the management of the investment portfolio. The investments subcommittee is also responsible for the development of investment strategies for the consideration and approval of the ALCO. Final authority and responsibility for all aspects of the conduct of investment activities rests with the board risk committee, all in accordance with the overall guidance and limitations of the investment policy.


The Bank has several programs designed to attract depository accounts from consumers and small and middle market businesses at interest rates generally consistent with market conditions. Deposits are the most significant funding source for the Company’s interest-earning assets. Deposits are attracted principally from clients within



our retail branch network through the offering of a broad array of deposit products to individuals and businesses, including noninterest-bearing demand deposit accounts, interest-bearing transaction accounts, savings accounts, money market deposit accounts, and time deposit accounts. Terms vary among deposit products with respect to commitment periods, minimum balances, and applicable fees. Interest paid on deposits represents the largest component of our interest expense. Interest rates offered on interest-bearing deposits are determined based on a number of factors, including, but not limited to, (1) interest rates offered in local markets by competitors, (2) current and expected economic conditions, (3) anticipated future interest rates, (4) the expected amount and timing of funding needs, and (5) the availability and cost of alternative funding sources. Deposit flows are controlled by the Bank primarily through pricing, and to a lesser extent, through promotional activities. Management believes that the rates that it offers, which are posted weekly on deposit accounts, are generally competitive with other financial institutions in the Bank’s respective market areas. Client deposits are attractive sources of funding because of their stability and low relative cost. Deposits are regarded as an important part of the overall client relationship and provide opportunities to cross-sell other bank services.

The Bank also holds public funds as deposits. The Bank’s strategy for acquiring public funds, as with any type of deposit, is determined by ALCO’s Funding and Liquidity Sub-Committee while pricing decisions are determined by ALCO’s Deposit Pricing Sub-committee. Typically many public fund deposits are allocated based upon the rate of interest offered and the ability of the bank to provide collateralization. The Bank can influence the level of its public fund deposits through pricing decisions. Public deposits typically require the pledging of collateral, most commonly marketable securities. This is taken into account when determining the level of interest to be paid on public deposits. The pledging of collateral, monitoring and management reporting represents additional operational requirements for the Bank. Public fund deposits are more volatile because they tend to be price sensitive and have high balances. Public funds have not historically presented any special risks to the Bank. Public funds are only one of many possible sources of liquidity that the Bank has available to draw upon as part of its liquidity funding strategy as set by ALCO.

The Bank accepted brokered deposits in 2014 as part of their contingency funding plan (“CFP”). The Company issued three-month brokered CDs through third-party intermediaries as test issuances under the CFP. However, brokered deposits have not been used as a long-term funding source. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), we may continue to accept brokered deposits as long as we are “well-capitalized” or “adequately-capitalized”.

Trust Services

The Bank, through its trust department, offers a full range of trust services on a fee basis. In its trust capacities, the Bank provides investment management services on an agency basis and acts as trustee for pension plans, profit sharing plans, corporate and municipal bond issues, living trusts, life insurance trusts and various other types of trusts created by or for individuals, businesses, and charitable and religious organizations. As of December 31, 2014, the trust departments of the Bank had approximately $15.3 billion of assets under administration compared to $14.1 billion as of December 31, 2013. As of December 31, 2014, administered assets include investment management and investment advisory agency accounts totaling $4.5 billion, corporate trust accounts totaling $4.5 billion, and the remaining balances were personal, employee benefit, estate and other trust accounts.


The financial services industry is highly competitive in our market area. The principal competitive factors in the markets for deposits and loans are interest rates and fee structures associated with the various products offered. We also compete through the efficiency, quality, and range of services and products we provide, as well as the convenience provided by an extensive network of customer access channels including local branch offices, ATMs, online banking, and telebanking centers. In attracting deposits and in our lending activities, we generally compete with other commercial banks, savings associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, mutual funds and insurance companies, and other financial institutions.




We make available free of charge, on or through our website www.hancockbank.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and amendments to such filings, as soon as reasonably practicable after each is electronically filed with, or furnished to, the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The SEC maintains a website that contains the Company’s reports, proxy and information statements, and the Company’s other SEC filings. The address of the SEC’s website is www.sec.gov. Information appearing on the Company’s website is not part of any report that it files with the SEC.


Bank Holding Company Regulation

The Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) pursuant to the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). The Company is also required to file certain reports with, and otherwise comply with the rules and regulations of the SEC under federal securities laws.

Federal Regulation

The Company is registered with the Federal Reserve as a bank holding company and has elected to be treated as a financial holding company under the Bank Holding Company Act. As such, the Company and its subsidiaries are subject to the supervision, examination and reporting requirements of the Bank Holding Company Act and the regulations of the Federal Reserve.

The Bank Holding Company Act generally prohibits a corporation that owns a federally insured financial institution (“bank”) from engaging in activities other than banking, managing or controlling banks or other subsidiaries engaging in permissible activities. Also prohibited is acquiring or obtaining control of more than 5% of the voting interests of any company that engages in activities other than those activities determined by the Federal Reserve to be so closely related to banking, managing or controlling banks as to be proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve considers whether the performance of the activity can reasonably be expected to produce benefits to the public that outweigh possible adverse effects. Examples of activities that the Federal Reserve has determined to be permissible are making, acquiring or servicing loans; leasing personal property; providing certain investment or financial advice; performing certain data processing services; acting as agent or broker in selling credit life insurance; and performing certain insurance underwriting activities. The Bank Holding Company Act does not place territorial limits on permissible bank-related activities of bank holding companies. Even with respect to permissible activities, however, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or its control of any subsidiary when the Federal Reserve has reasonable cause to believe that continuation of such activity or control of such subsidiary would pose a serious risk to the financial safety, soundness or stability of any bank subsidiary of that holding company.

The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before it: (1) acquires ownership or control of any voting shares of any bank if, after such acquisition, such bank holding company will own or control more than 5% of the voting shares of such bank, (2) or any of its non-bank subsidiaries acquire all of the assets of a bank, (3) merges with any other bank holding company, or (4) engages in permissible non-banking activities. In reviewing a proposed covered acquisition, the Federal Reserve considers a bank holding company’s financial, managerial and competitive posture. The future prospects of the companies and banks concerned and the convenience and needs of the community to be served are also considered. The Federal Reserve also reviews the indebtedness to be incurred by a bank holding company in connection with the proposed acquisition to ensure that the bank holding company can service such



indebtedness without adversely affecting its ability, and the ability of its subsidiaries, to meet their respective regulatory capital requirements. The Bank Holding Company Act further requires that consummation of approved bank holding company or bank acquisitions or mergers must be delayed for a period of not less than 15 or more than 30 days following the date of Federal Reserve approval. During such 15 to 30-day period, the Department of Justice has the right to review the competitive aspects of the proposed transaction. The Department of Justice may file a lawsuit with the relevant United States Court of Appeals seeking an injunction against the proposed acquisition.

As described above, the prior approval of the Federal Reserve must be obtained before the Company may acquire substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if, after such acquisition, it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”) permits adequately capitalized and managed bank holding companies to acquire control of banks in any state, subject to federal regulatory approval, without regard to whether such a transaction is prohibited by the laws of any state. The Riegle-Neal Act further provides that a bank holding company may not, following an interstate acquisition, control more than 10% of nationwide insured deposits or 30% of deposits within any state in which the acquiring bank operates. States have the right to adopt legislation to lower the 30% limit, although no states within the Company’s current market area have done so. Additional provisions require that interstate activities conform to the Community Reinvestment Act, which is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low-and moderate-income neighborhoods, consistent with safe and sound operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) authorizes national and state banks to establish de novo branches in other states to the same extent a bank chartered in those states would be so permitted.

The Gramm-Leach-Bliley Act of 1999 (the “Financial Services Modernization Act”) established a comprehensive framework that permits affiliations among qualified bank holding companies, commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the Bank Holding Company Act framework to permit a holding company to engage in a full range of financial activities through a financial holding company.

Capital Requirements

General Risk-Based and Leverage-Based Capital Requirements

The Federal Reserve has adopted capital adequacy guidelines for use in its examination and regulation of bank holding companies and financial holding companies. The regulatory capital of a bank holding company or financial holding company under applicable federal capital adequacy guidelines is particularly important in the Federal Reserve’s evaluation of the overall safety and soundness of the bank holding company or financial holding company and are important factors considered by the Federal Reserve in evaluating any applications made by such holding company to the Federal Reserve. If regulatory capital falls below minimum guideline levels, a financial holding company may lose its status as a financial holding company and a bank holding company or bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open additional facilities.

Additionally, each bank subsidiary of a financial holding company as well as the holding company itself must be well capitalized and well managed as determined by the subsidiary bank’s principal federal regulator, which in the case of the Bank, is the FDIC. To be considered well managed, the bank and holding company must have received at least a satisfactory composite rating and a satisfactory management rating at its most recent examination. The Federal Reserve rates bank holding companies through a confidential component and composite 1-5 rating system, with a composite rating of 1 being the highest rating and 5 being the lowest. This system is designed to help identify institutions requiring special attention. Financial institutions are assigned



ratings based on evaluation and rating of their financial condition and operations. Components reviewed include capital adequacy, asset quality, management capability, the quality and level of earnings, the adequacy of liquidity and sensitivity to interest rate fluctuations. As of December 31, 2014, the Company and the Bank were both well capitalized and well managed.

A financial holding company that becomes aware that it or a subsidiary bank has ceased to be well capitalized or well managed must notify the Federal Reserve and enter into an agreement to cure the identified deficiency. If the deficiency is not cured timely, the Federal Reserve Board may order the financial holding company to divest its banking operations. Alternatively, to avoid divestiture, a financial holding company may cease to engage in the financial holding company activities that are unrelated to banking or otherwise impermissible for a bank holding company.

There are two measures of regulatory capital applicable to holding companies in 2014: (1) leverage capital ratio and (2) risk-based capital ratios.


     Minimum     Company

Tier 1 leverage capital ratio

     3.00     9.17

Risk-based capital ratios


Tier 1 capital

     4.00     11.23

Total risk-based capital (Tier 1 plus Tier 2)

     8.00     12.30

The essential difference between the leverage capital ratio and the risk-based capital ratios is that the latter identify and weight both balance sheet and off-balance sheet risks. Tier 1 capital generally includes common equity, retained earnings, qualifying minority interests (issued by consolidated depository institutions or foreign bank subsidiaries), accounts of consolidated subsidiaries and an amount of qualifying perpetual preferred stock, limited to 50% of Tier 1 capital. In calculating Tier 1 capital, goodwill and other disallowed intangibles and disallowed deferred tax assets and certain other assets are excluded. Tier 2 capital is a secondary component of risk-based capital, consisting primarily of perpetual preferred stock that may not be included as Tier 1 capital, mandatory convertible securities, certain types of subordinated debt and an amount of the allowance for loan losses (limited to 1.25% of risk weighted assets).

The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to take into account off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under the risk-based capital guidelines, assets are assigned to one of four risk categories: 0%, 20%, 50% and 100%. For example, U.S. Treasury securities are assigned to the 0% risk category while most categories of loans are assigned to the 100% risk category. Off-balance sheet exposures such as standby letters of credit are risk-weighted and all or a portion thereof are included in risk-weighted assets based on an assessment of the relative risks that they present. The risk-weighted asset base is equal to the sum of the aggregate dollar values of assets and off-balance sheet items in each risk category, multiplied by the weight assigned to that category.

Basel III Capital Requirements Effective January 1, 2015

On July 2, 2013, the Company’s and the Bank’s primary federal regulators—the Federal Reserve and the FDIC—adopted final rules implementing the Basel III framework, which substantially revises the leverage and risk-based capital requirements currently applicable to bank holding companies and depository institutions. These final rules are based on international capital accords of the Basel Committee on Banking Supervision (the “Basel Committee”).



The new rules address both the components of capital and other issues affecting the numerator in banking institutions’ regulatory capital ratios, as well as the risk weights and other issues affecting the denominator, replacing the existing Basel I-derived risk weighting approach with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 “Basel II” capital accords. Regarding the denominator, under the final rules, the Company, among other items, will be required to increase the risk weights applied to certain high volatility commercial real estate loans and to certain loans past due. Additionally, the Company will be required to risk weight at 20% the conversion factors for commitments with an original maturity of one year or less that are not unconditionally cancellable at any time. Regarding the numerator under the final rules, NOLs and tax credits carried forward will be deducted from Tier 1 capital. Additionally, there are deductions and adjustments to capital for goodwill and other intangibles as well as deductions and adjustments to capital by the amount that the carrying value of certain assets exceeds 10% of capital. Examples of these assets are deferred tax assets, mortgage servicing rights, significant investments in unconsolidated subsidiaries, investments in certain capital instruments of financial entities and unrealized gains on cash flow hedges included in accumulated other comprehensive income arising from hedges not carried at fair market value on the balance sheet. Under the final rules, some banks, including the Bank, are given a one-time “opt out” in which they may elect to filter certain volatile accumulated other comprehensive income (“AOCI”) components from inclusion in regulatory capital. The AOCI opt-out election must be made on the institution’s first Call Report, FR Y-9C or FR Y-9SP, as applicable, filed after January 1, 2015. The Company intends to timely elect to opt out.

The final rules established a new category of capital measure, Common Equity Tier 1 capital, which includes a limited number of capital instruments from the existing definition of Tier 1 Capital, as well as raised minimum thresholds for Tier 1 Leverage capital (100 basis points), and Tier 1 Risk-based capital (200 basis points). Additionally, the final rules introduced a capital conservation buffer of Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based capital ratios above the minimum risk-based capital requirements. The buffer must be maintained to avoid limitations on capital distributions and limitations on discretionary bonus payments to executive officers. Each of the minimum capital ratios takes effect in 2015, with the capital conservation buffer set to be phased in beginning in 2016 and implemented in full by 2019. Based on estimated capital ratios using Basel III definitions, the Company and the Bank currently exceed all capital requirements of the new rule, including the fully phased-in conservation buffer.

Basel III Capital Adequacy Ratios

Effective January 1, 2015


                 Minimum Capital Plus
Capital Conservation Buffer
      Minimum     Well-Capitalized     2016     2017     2018     2019  

Tier I leverage capital ratio

     4.00     5.00     N/A        N/A        N/A        N/A   

Risk-based capital ratios


Common equity Tier I capital

     4.50     6.50     5.125     5.75     6.375     7.00

Tier I capital

     6.00     8.00     6.625     7.25     7.875     8.50

Total risk-based capital (Tier 1 plus Tier 2)

     8.00     10.00     8.625     9.25     9.875     10.50

Federal Reserve Oversight

The Company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Company’s consolidated net worth. The Federal Reserve may disapprove such a transaction if it determines that the proposed redemption or stock purchase would constitute an unsafe or unsound practice, would violate any law, regulation, Federal Reserve order or directive or any condition imposed by, or written agreement with, the Federal Reserve.



The Federal Reserve has issued “Policy Statement on Cash Dividends Not Fully Covered by Earnings (the “Policy Statement”) which sets forth various guidelines that the Federal Reserve believes a bank holding company should follow in establishing its dividend policy. In general, the Federal Reserve stated that bank holding companies should pay dividends only out of current earnings. The Federal Reserve also stated that dividends should not be paid unless the prospective rate of earnings retention by the holding company appears consistent with its capital needs, asset quality and overall financial condition.

The Company is required to file annual and quarterly reports with the Federal Reserve, and such additional information as the Federal Reserve may require pursuant to the Bank Holding Company Act. The Federal Reserve may examine a bank holding company or any of its subsidiaries.

Additional Federal Regulatory Issues

In June 2010, the federal banking agencies issued joint guidance on executive compensation designed to help ensure that a banking organization’s incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. In addition, the Dodd-Frank Act requires those agencies, along with the Commission, to adopt rules to require reporting of incentive compensation and to prohibit certain compensation arrangements. The federal banking agencies and the Commission proposed such rules in April 2011. In addition, in June 2012, the Commission issued final rules to implement the Dodd-Frank Act’s requirement that the Commission direct the national securities exchanges to adopt certain listing standards related to the compensation committee of a company’s board of directors as well as its compensation advisers.

The Company is a legal entity separate and distinct from the Bank. There are various restrictions that limit the ability of the Bank to finance, pay dividends or otherwise supply funds to the Company or other affiliates. In addition, subsidiary banks of holding companies are subject to certain restrictions under Section 23A and B of the Federal Reserve Act on any extension of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities thereof and on the taking of such stock or securities as collateral for loans to any borrower. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases or sales of property, or furnishing of services.

Stress Testing

The Dodd-Frank Act requires stress testing of bank holding companies and banks, such as the Company and the Bank, that have more than $10 billion but less than $50 billion of consolidated assets (“medium-sized companies”). Additional stress testing is required for banking organizations having $50 billion or more of assets. Medium-sized companies, including the Company and the Bank, are required to conduct annual company-run stress tests under rules the federal bank regulatory agencies issued in October 2012.

Stress tests analyze the potential impact of scenarios on the consolidated earnings, balance sheet and capital of a bank holding company or depository institutions over a designated planning horizon of nine quarters, taking into account the organization’s current condition, risks, exposures, strategies, and activities, and such factors as the regulators may request of a specific organization. These are tested against baseline, adverse, and severely adverse economic scenarios specified by the Federal Reserve for the Company and by the FDIC for the Bank.

Each banking organization’s board of directors and senior management are required to approve and review the policies and procedures of their stress-testing processes as frequently as economic conditions or the condition of the organization may warrant, and at least annually. They are also required to consider the results of the stress test in the normal course of business, including the banking organization’s capital planning (including dividends and share buybacks), assessment of capital adequacy and maintaining capital consistent with its risks, and risk management practices. The results of the stress tests are provided to the applicable federal banking agencies. Public disclosure of stress test results is required beginning in 2015. The Company is in the process of preparing its latest stress tests for the Company and the Bank.



Bank Regulation

On March 31, 2014, Whitney Bank (headquartered in New Orleans, Louisiana) was merged into Hancock Bank (headquartered in Gulfport, Mississippi) under the charter and articles of incorporation of Hancock Bank. The consolidated entity was renamed Whitney Bank. Whitney Bank does business under the brand names “Hancock Bank” in Mississippi, Alabama and Florida, and “Whitney Bank” in Louisiana and Texas.

The operation of the Bank is subject to state and federal statutes applicable to state banks and the regulations of the Federal Reserve, the FDIC and the Consumer Financial Protection Bureau (“CFPB”). The operation of the Bank may also be subject to applicable Office of the Comptroller of the Currency (“OCC”) regulation to the extent state banks are granted parity with national banks. Such statutes and regulations relate to, among other things, required reserves, investments, loans, mergers and consolidations, issuances of securities, payments of dividends, establishment of branches, consumer protection and other aspects of the Bank’s operations.

The Bank is subject to regulation and periodic examinations by the CFPB, FDIC and the Mississippi Department of Banking and Consumer Finance (the “MDBCF”). These regulatory authorities routinely examine the Bank’s reserves, loan and investment quality, consumer compliance, management policies, procedures and practices and other aspects of operations. These examinations are designed to protect the Bank’s depositors, rather than our shareholders. In addition to these regular examinations, the Company and the Bank must furnish periodic reports to their respective regulatory authorities containing a full and accurate statement of their affairs.

The Dodd-Frank Act has removed many limitations on the Federal Reserve’s authority to examine banks that are subsidiaries of bank holding companies. Under the Dodd-Frank Act, the Federal Reserve is generally permitted to examine bank holding companies and their subsidiaries, provided that the Federal Reserve must rely on reports submitted directly by the institution and examination reports of the appropriate regulators (such as the FDIC and the MDBCF) to the fullest extent possible; must provide reasonable notice to, and consult with, the appropriate regulators before commencing an examination of a bank holding company subsidiary; and, to the fullest extent possible, must avoid duplication of examination activities, reporting requirements, and requests for information.

The Dodd-Frank Act also established the CFPB. The CFPB is funded by the Federal Reserve and, in consultation with the Federal banking agencies, makes rules relating to consumer protection. The CFPB has the authority, should it wish to do so, to rewrite virtually all of the consumer protection regulations governing banks, including those implementing the Truth in Lending Act, the Real Estate Settlement Procedures Act (“RESPA”), the Truth in Savings Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the S.A.F.E. Mortgage Licensing Act, the Fair Credit Reporting Act (except Sections 615(e) and 628), the Fair Debt Collection Practices Act, and the Gramm-Leach-Bliley Act (sections 502 through 509 relating to privacy), among others. The Bank is subject to direct supervision and examination by the CFPB in respect of the foregoing consumer protection acts and regulations.

The Bank is a member of the FDIC, and its deposits are insured as provided by law by the Deposit Insurance Fund (the “DIF”). The deposits of the Bank are insured up to applicable limits and the Bank is subject to deposit insurance assessments to maintain the DIF. The FDIC utilizes a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory rating.

Effective January 1, 2007, the FDIC began imposing deposit assessment rates based on the risk category of the bank, with Risk Category I being the lowest risk category and Risk Category IV being the highest risk category. The Dodd-Frank Act changed the method of calculation for FDIC insurance assessments. Prior to implementation of the Dodd-Frank Act, the assessment base was based upon domestic deposits minus a few allowable exclusions, such as pass-through reserve balances. Under the Dodd-Frank Act, assessments are calculated based upon the depository institution’s average consolidated total assets, less its average amount of tangible equity. In addition to providing for the required change in assessment base, the FDIC’s final deposit insurance regulations implementing the Dodd-Frank Act provisions eliminated the assessment adjustments based



on unsecured debt, secured liabilities, and brokered deposits; added a new adjustment for holding unsecured debt issued by another insured depository institution; and lowered the initial base assessment rate schedule in order to collect approximately the same amount of revenue under the new base as under the old base, among other changes.

The base assessment rates range from 5 to 35 basis points, with the initial assessment rates subject to adjustments which could increase or decrease the total base assessment rates. The adjustments include (1) a decrease for long-term unsecured debt, including most senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; and (2) for Non-Risk Category I institutions, an increase for brokered deposits above a threshold amount. The basic limit on federal deposit insurance coverage is $250,000 per depositor.

Since the first quarter of 2000, all institutions with deposits insured by the FDIC have been required to pay assessments to fund interest payments on bonds issued by the Financing Corporation (the “FICO”), a mixed-ownership government corporation established to recapitalize a predecessor to the DIF. The FICO assessment rate is adjusted quarterly to reflect changes in the assessment bases of the fund based on quarterly Call Report and Thrift Financial Report submissions. The current annualized assessment rate is 0.600 basis points, or approximately 0.150 basis points per quarter. These assessments will continue until the FICO bonds mature in 2017 through 2019.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) subjects banks and bank holding companies to increased regulation and supervision, including a regulatory emphasis that links supervision to bank capital levels. Also, federal banking regulators are required to take prompt regulatory action with respect to depository institutions that fall below specified capital levels and to draft non-capital regulatory measures to assure bank safety.

FDICIA contains a “prompt corrective action” section intended to address problem institutions at the least possible long-term cost to the DIF. Pursuant to this section, the federal banking agencies are required to prescribe a leverage limit and a risk-based capital requirement indicating levels at which institutions will be deemed to be “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In the case of a depository institution that is “critically undercapitalized” (a term defined to include institutions which still have positive net worth), the federal banking regulators are generally required to appoint a conservator or receiver.

FDICIA further requires regulators to perform annual on-site bank examinations, places limits on real estate lending and tightens audit requirements. The legislation attempted to eliminate the “too big to fail” doctrine, which protects uninsured deposits of large banks and restricts the ability of undercapitalized banks to obtain extended loans from the Federal Reserve Board discount window. FDICIA also imposes disclosure requirements relating to fees charged and interest paid on checking and deposit accounts.

In addition to regulating capital, the FDIC has broad authority to prevent the development or continuance of unsafe or unsound banking practices. Pursuant to this authority, the FDIC has adopted regulations that restrict preferential loans and loan amounts to “affiliates” and “insiders” of banks, require banks to keep information on loans to major shareholders and executive officers and bar certain director and officer interlocks between financial institutions. The FDIC is also authorized to approve mergers, consolidations and assumption of deposit liability transactions between insured banks and between insured banks and uninsured banks or institutions to prevent capital or surplus diminution in such transactions where the resulting, continuing or assumed bank is an insured nonmember state bank.

Although the Bank is not a member of the Federal Reserve, it is subject to Federal Reserve regulations that require the Bank to maintain reserves against transaction accounts (primarily checking accounts). The Federal Reserve regulations currently require that reserves be maintained against net transaction accounts. On January 23, 2014, the Federal Reserve regulations were revised to require that reserves be maintained against net transaction accounts in the amount of 3% of the aggregate of such accounts up to $103.6 million, and, if the



aggregate of such accounts exceeds $103.6 million, 10% of the total in excess of $103.6 million. This regulation is subject to an exemption from reserve requirement on $14.5 million of an institution’s transaction accounts.

The Financial Services Modernization Act also permits national banks, and through state parity statutes, state banks, to engage in expanded activities through the formation of financial subsidiaries. A state bank may have a subsidiary engaged in any activity authorized for state banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, each of which may only be conducted through a subsidiary of a financial holding company. Financial activities include all activities permitted under new sections of the Bank Holding Company Act or permitted by regulation.

A state bank seeking to have a financial subsidiary, and each of its depository institution affiliates, must be “well-capitalized” and “well-managed.” The total assets of all financial subsidiaries may not exceed the lesser of 45% of a bank’s total assets, or $50 billion. A state bank must exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary. The assets of the financial subsidiary may not be consolidated with the bank’s assets. The bank must also have policies and procedures to assess financial subsidiary risk and protect the bank from such risks and potential liabilities.

The Financial Services Modernization Act also added a new section of the Federal Deposit Insurance Act governing subsidiaries of state banks that engage in “activities as principal that would only be permissible” for a national bank to conduct in a financial subsidiary. It expressly preserves the ability of a state bank to retain all existing subsidiaries. Because Mississippi permits commercial banks chartered by the state to engage in any activity permissible for national banks, the Bank will be permitted to form subsidiaries to engage in the activities authorized by the Financial Services Modernization Act if it so chooses. In order to form a financial subsidiary, a state bank must be well-capitalized, and the state bank would be subject to the same capital deduction, risk management and affiliate transaction rules as applicable to national banks.

In 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) was signed into law. The USA Patriot Act broadened the application of anti-money laundering regulations to apply to additional types of financial institutions, such as broker-dealers, and strengthened the ability of the U.S. government to detect and prosecute international money laundering and the financing of terrorism. The principal provisions of Title III of the USA Patriot Act require that regulated financial institutions, including banks: (i) establish an anti-money laundering program that includes training and audit components; (ii) comply with regulations regarding the verification of the identity of any person seeking to open an account; (iii) take additional required precautions with non-U.S. owned accounts; and (iv) perform certain verification and certification of money laundering risk for their foreign correspondent banking relationships. The USA Patriot Act also expanded the conditions under which funds in a U.S. interbank account may be subject to forfeiture and increased the penalties for violation of anti-money laundering regulations. Failure of a financial institution to comply with the USA Patriot Act’s requirements could have serious legal and reputational consequences for the institution. The Bank has adopted policies, procedures and controls to address compliance with the requirements of the USA Patriot Act under the existing regulations and will continue to revise and update its policies, procedures and controls to reflect changes required by the USA Patriot Act and implementing regulations.

Other Regulatory Matters

Risk-retention rules. Under the final risk-retention rules, banks that sponsor the securitization of asset-backed securities and residential-mortgage backed securities are required to retain 5% of any loan they sell or securitize, except for mortgages that meet low-risk standards to be developed by regulators.

Limitation on federal preemption. Limitations have been imposed on the ability of national bank regulators to preempt state law. Formerly, the national bank and federal thrift regulators possessed preemption powers with regard to transactions, operating subsidiaries and general civil enforcement authority. These preemption



requirements have been limited by the Dodd-Frank Act, which will likely impact state banks by limiting the future scope of approval of activities that would otherwise be subject to the approval of the OCC.

Changes to regulation of bank holding companies. Under the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed to engage in interstate transactions. In the past, only the subsidiary banks were required to meet those standards. The Federal Reserve Board’s “source of strength doctrine” has now been codified, mandating that bank holding companies such as the Company serve as a source of strength for their subsidiary banks, such that the bank holding company must be able to provide financial assistance in the event the subsidiary bank experiences financial distress.

Mortgage Rules. During 2013, the CFPB finalized a series of rules related to the extension of residential mortgage loans made by banks. Among these rules are requirements that a bank make a good faith determination that a borrower has the ability to repay a mortgage loan prior to extending such credit, a requirement that certain mortgage loans contain escrow payments, new appraisal requirements, and specific rules regarding how loan originators may be compensated and the servicing of residential mortgage loans. The implementation of these new rules began in January 2014.

Volcker Rule. In December 2013, the Federal Reserve, the FDIC, the OCC, the Commission, and the Commodity Futures Trading Commission issued the “Prohibitions And Restrictions On Proprietary Trading And Certain Interests In, And Relationships With, Hedge Funds And Private Equity Funds,” commonly referred to as the Volcker Rule, which regulates and restricts investments which may be made by banks. The Volcker Rule was adopted to implement a portion of the Dodd-Frank Act and new Section 13 of the Bank Holding Company Act, which prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, or sponsoring or having certain relationships with, a hedge fund or private equity fund (“covered funds”), subject to certain exemptions.

Debit Interchange Fees

Interchange fees, or “swipe” fees, are fees that merchants pay to credit card companies and card-issuing banks such as the Bank for processing electronic payment transactions on their behalf. The maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction, subject to an upward adjustment of 1 cent if an issuer certifies that it has implemented policies and procedures reasonably designed to achieve the fraud-prevention standards set forth by the Federal Reserve.

In addition, the legislation prohibits card issuers and networks from entering into exclusive arrangements requiring that debit card transactions be processed on a single network or only two affiliated networks, and allows merchants to determine transaction routing. The Federal Reserve rule limiting debit interchange fees has significantly reduced our debit card interchange revenues.


The foregoing is a brief summary of certain statutes, rules and regulations affecting the Company and the Bank. It is not intended to be an exhaustive discussion of all statutes and regulations having an impact on the operations of such entities.

Increased regulation generally has resulted in increased legal and compliance expense.

Finally, additional bills may be introduced in the future in the U.S. Congress and state legislatures to alter the structure, regulation and competitive relationships of financial institutions. It cannot be predicted whether and in what form any of these proposals will be adopted or the extent to which the business of the Company and the Bank may be affected thereby.



Effect of Governmental Monetary and Fiscal Policies

The difference between the interest rate paid on deposits and other borrowings and the interest rate received on loans and securities comprises most of a bank’s earnings. In order to mitigate the interest rate risk inherent in the industry, the banking business is becoming increasingly dependent on the generation of fee and service charge revenue.

The earnings and growth of a bank will be affected by both general economic conditions and the monetary and fiscal policy of the U.S. government and its agencies, particularly the Federal Reserve. The Federal Reserve sets national monetary policy such as seeking to curb inflation and combat recession. This is accomplished by its open-market operations in U.S. government securities, adjustments in the amount of reserves that financial institutions are required to maintain and adjustments to the discount rates on borrowings and target rates for federal funds transactions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest rates on loans and deposits. The nature and timing of any future changes in monetary policies and their potential impact on the Company cannot be predicted.




The names, ages, positions and business experience of our executive officers:





John M. Hairston

     51       President and Chief Executive Officer since 2014; Chief Executive Officer since 2006 and Chief Operating Officer (since 2008) of the Company from 2008 to 2011; Director of the Company since 2006.

Michael M. Achary

     54       Executive Vice President since 2008; Chief Financial Officer since 2007.

Michael K. Dickerson

     48       Executive Vice President since 2014; Chief Risk Officer Since 2013. Senior Vice President since 2007.

Joseph S. Exnicios

     59       President, Whitney Bank since 2011; Senior Executive Vice President and Chief Risk Officer of Whitney Holding Corporation and Whitney National Bank from 2009 to 2011; Executive Vice President of Whitney Holding Corporation and Whitney National Bank from 2004 to 2009.

Edward G. Francis

     48       Executive Vice President since 2008; Chief Commercial Banking Officer since 2010; Executive – Commercial Banking from 2008 to 2010; Senior Commercial Lending Officer from 2003 to 2008.

Samuel B. Kendricks

     55       Executive Vice President since 2011; Chief Credit Officer since 2010; Chief Credit Policy Officer from 2009 to 2010; Senior Regional Credit Officer from 2008 to 2009.

D. Shane Loper

     48       Executive Vice President since 2008; Chief Administrative Officer since 2013; Chief Risk Officer from 2012 to 2013; Chief Risk and Administrative Officer from 2010 to 2012.

Joy Lambert Phillips

     59       Executive Vice President since 2009; Corporate Secretary since June 2011; General Counsel since 1999.

Clifton J. Saik

     61       Executive Vice President since 2002; Chief Wealth Management Officer since 2010; Executive, Wealth Management from 2007 to 2010; Director of Trust from 1998 to 2011.

Suzanne C. Thomas

     59       Executive Vice President and Chief Credit Officer of Whitney Bank since 2011; Chief Wholesale Credit Officer since 2012; Executive Vice President and Chief Credit Officer of Whitney Holding Corporation and Whitney National Bank from 2010 to 2011; Senior Vice President of Whitney National Bank from 2001 to 2009.

Stephen E. Barker

     58       Chief Accounting Officer, Hancock Holding Company since 2011; Senior Vice President and Comptroller, Whitney National Bank from 2000 to 2011.



We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and financial condition could be materially adversely affected by the factors described below.

While we describe each risk separately, some of these risks are interrelated and certain risks could trigger the applicability of other risks described below. Also, the risks and uncertainties described below are not the only ones that we may face. Additional risks and uncertainties not presently known to us, or that we currently do not consider significant, could also potentially impair, and have a material adverse effect on, our business, results of operations and financial condition.



Risks Related to Economic and Market Conditions

We may be vulnerable to certain sectors of the economy and to economic conditions both generally and locally across the specific markets in which we operate.

A substantial portion of our loan portfolio is secured by real estate. While the commercial real estate markets are stable throughout much of the Gulf South, the real estate markets for residential properties have been mixed. In weak economies, or in areas where real estate market conditions are distressed, we may experience a higher than normal level of nonperforming real estate loans, the collateral value of the portfolio and the revenue stream from those loans could come under stress, and additional provisions for the allowance for loan and lease losses could be necessitated. Our ability to dispose of foreclosed real estate at prices at or above the respective carrying values could also be impaired, causing additional losses.

Recent trends in the energy sector also present concerns. The oil and gas industry is a significant component of the economy in several of our core markets. The oil and gas industry is particularly sensitive to certain industry-specific economic factors, the most important of which are worldwide demand for, and supply of, oil and gas. When demand is soft relative to supply, commodity prices decline and overall levels of activity in the sector, including the level of capital expenditures, weaken. Moreover, given the importance of the energy industry to the economies of Louisiana and Texas, when the energy sector is under stress, the performance of other business and commercial segments of those local economies may be affected.

Our financial performance may also be adversely affected by other macroeconomic factors that affect the U.S. economy. Recovery from the recent recession has been slow. There are continuing concerns about the overall health of the European economy (including Russia), as well as other global financial markets, all of which could hinder the performance of the U.S. economy and affect the stability of global financial markets. Additionally, because our operations are concentrated in the Gulf South region of the U.S., unfavorable economic conditions in that market could significantly affect the demand for our loans and other products, the ability of borrowers to repay loans and the value of collateral securing loans.

Certain changes in interest rates, mortgage origination, inflation, deflation, or the financial markets could affect our results of operations, demand for our products and our ability to deliver products efficiently.

Our assets and liabilities are primarily monetary in nature and we are subject to significant risks tied to changes in interest rates that are highly sensitive to many factors that are beyond our control. Our ability to operate profitably is largely dependent upon net interest income. Net interest income is the primary component of our earnings and is affected by both local external factors such as economic conditions in the Gulf South and local competition for loans and deposits, as well as broader influences such as federal monetary policy and market interest rates. Unexpected movement in interest rates markedly changing the slope of the current yield curve could cause our net interest margins to decrease, subsequently reducing net interest income. In addition, such changes could adversely affect the valuation of our assets and liabilities.

Loan originations, and potentially loan revenues, could be adversely impacted by sharply rising interest rates. If market rates of interest were to increase, it would increase debt service requirements for some of our borrowers; adversely affect those borrowers’ ability to pay as contractually obligated; potentially reduce loan demand or result in additional delinquencies or charge-offs; and increase the cost of our deposits, which are a primary source of funding.

We are also subject to the following risks:



the mortgage rules issued by the CFPB implemented in 2014 could limit our ability to originate mortgages to borrowers that do not meet or are unable to meet the standards set forth in the mortgage regulations and potentially adversely impact our mortgage revenues;




an underperforming stock market could adversely affect wealth management fees associated with managed securities portfolios and could also reduce brokerage transactions, therefore reducing investment brokerage revenues; and



an unanticipated increase in inflation could cause our operating costs related to salaries and benefits, technology, and supplies to increase at a faster pace than revenues.

The fair market value of our securities portfolio and the investment income from these securities also fluctuate depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations.

The financial soundness and stability of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and financial soundness and stability of other financial institutions as a result of credit, trading, clearing or other relationships between such institutions. We routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks and other institutional clients. As a result, defaults by, and even rumors regarding, other financial institutions, or the financial services industry generally, could impair our ability to effect such transactions and could lead to losses or defaults by us. In addition, a number of our transactions expose us to credit risk in the event of default of a counterparty or client. Additionally, our credit risk may be increased if the collateral we hold in connection with such transactions cannot be realized or can only be liquidated at prices that are not sufficient to cover the full amount of our financial exposure. Any such losses could have a material adverse effect on our financial condition and results of operations.

Changes in the policies of monetary authorities and other government action could adversely affect our profitability.

Our financial performance is affected by credit policies of monetary authorities, particularly the Federal Reserve. The instruments of monetary policy employed by the Federal Reserve include open market transactions in U.S. government securities, changes in the discount rate or the federal funds rate on bank borrowings and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, we cannot predict the potential impact of future changes in interest rates, deposit levels, and loan demand on our business and earnings. Furthermore, the actions of the U.S. government and other governments may result in currency fluctuations, exchange controls, market disruption, material decreases in the values of certain of our financial assets and other adverse effects.

Governmental responses to market disruptions may be inadequate and may have unintended consequences.

Although Congress and financial regulators continue to implement measures designed to assure greater stability in the financial markets, the overall impact of these efforts on the financial markets is unclear. In addition, the Dodd-Frank Act has resulted in significant changes to the banking industry as a whole which, depending on how its provisions are implemented by the agencies, could adversely affect our business.

In addition, we compete with a number of financial services companies that are not subject to the same degree of regulatory oversight. The impact of the existing regulatory framework and any future changes to it could negatively affect our ability to compete with these institutions, which could have a material adverse effect on our results of operations and prospects.

We may need to rely on the financial markets to provide needed capital.

Our common stock is listed and traded on the NASDAQ Global Select Market. If our capital resources prove in the future to be inadequate to meet our capital requirements, we may need to raise additional debt or equity



capital. The loss of confidence in financial institutions over the past several years may increase our cost of capital and if conditions in the capital markets are not favorable, we may be constrained in raising capital. We maintain a consistent analyst following; therefore, downgrades in our prospects by one or more of our analysts may cause our stock price to fall and significantly limit our ability to access the markets for additional capital requirements. An inability to raise additional capital on acceptable terms when and if needed could have a material adverse effect on our business, financial condition or results of operations.

The interest rates or preferred dividend rates that we pay on our securities are also influenced by, among other things, the credit ratings that we, our affiliates and/or our securities receive from recognized rating agencies. Our credit ratings are based on a number of factors, including our financial strength and some factors not entirely within our control such as conditions affecting the financial services industry generally, and remain subject to change at any time. A downgrade to the credit rating of us or our affiliates could affect our ability to access the capital markets, increase our borrowing cost and negatively impact our profitability. A downgrade to us, our affiliates or our securities could create obligations or liabilities to us under the terms of our outstanding securities that could increase our costs or otherwise have a negative effect on our results of operations or financial condition. Additionally, a downgrade to the credit rating of any particular security issued by us or our affiliates could negatively affect the ability of the holders of that security to sell the securities and the prices at which any such securities may be sold.

Because our decision to incur debt and issue securities in future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

Risks Related to the Financial Services Industry

We must maintain adequate sources of funding and liquidity.

Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to support our operations and fund outstanding liabilities, as well as meet regulatory requirements. Our access to sources of liquidity in amounts adequate to fund our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include an economic downturn that affects the geographic markets in which our loans and operations are concentrated, or any material deterioration of the credit markets. Our access to deposits may also be affected by the liquidity needs of our depositors and the loss of deposits to alternative investments. Although we have historically been successful in replacing maturing deposits and advances as necessary, we might not be able to duplicate that success in the future, especially if a large number of our depositors were to withdraw their amounts on deposit. A failure to maintain an adequate level of liquidity could materially and adversely affect our business, financial condition and results of operations.

We may rely on the mortgage secondary market from time to time to provide liquidity.

From time to time, we have sold to certain agencies certain types of mortgage loans that meet their conforming loan requirements in order to reduce our interest rate risk and provide liquidity. There is a risk that these agencies will limit or discontinue their purchases of loans that are conforming due to capital constraints, a change in the criteria for conforming loans or other factors. Additionally, various proposals have been made to reform the U.S. residential mortgage finance market, including the role of the agencies. The exact effects of any such reforms are not yet known, but may limit our ability to sell conforming loans to the agencies. If we are unable to continue to sell conforming loans to the agencies, our ability to fund, and thus originate, additional mortgage loans may be adversely affected, which would in turn adversely affect our results of operations.

Greater loan losses than expected may adversely affect our earnings.

We are exposed to the risk that our borrowers will be unable to repay their loans in accordance with their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit risk



is inherent in our business and any material level of credit failure could have a material adverse effect on our operating results. Our credit risk with respect to our real estate and construction loan portfolio relates principally to the creditworthiness of our corporate borrowers and the value of the real estate pledged as security for the repayment of loans. Our credit risk with respect to our commercial and consumer loan portfolio will depend on the general creditworthiness of businesses and individuals within our local markets.

We make various assumptions and judgments about the collectability of our loan portfolio and provide an allowance for estimated loan losses based on a number of factors. This process requires difficult, subjective and complex judgments, including analysis of economic or market conditions that might impair the ability of borrowers to repay their loans. If our assumptions or judgments prove to be incorrect, the allowance for loan losses may not be sufficient to cover actual loan losses. We may have to increase our allowance in the future in response to the request of one of our primary banking regulators, to adjust for changing conditions and assumptions, or as a result of any deterioration in the quality of our loan portfolio. Losses in excess of the existing allowance or any provisions for loan losses taken to increase the allowance will reduce our net income and could materially adversely affect our financial condition and results of operations. Future provisions for loan losses may vary materially from the amounts of past provisions.

Failure to comply with the terms of loss sharing arrangements with the FDIC may result in significant losses.

Any failure to comply with the terms of any loss share agreements that we have with the FDIC, or to properly service the loans and foreclosed assets covered by loss share agreements, may cause individual loans, large pools of loans or other covered assets to lose eligibility for reimbursement from the FDIC. This could result in material losses that are currently not anticipated and could adversely affect our financial condition, results of operations or liquidity.

We depend on the accuracy and completeness of information about clients and counterparties.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we rely in substantial part on information furnished by or on behalf of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors if made available. If this information is inaccurate, we may be subject to financial losses, regulatory action, reputational harm or other adverse effects with respect to our business, financial condition and results of operations.

We are subject to a variety of risks in connection with any sale of loans we may conduct.

From time to time we may sell all or a portion of one of more loan portfolios, and in connection therewith we may make certain representations and warranties to the purchaser concerning the loans sold and the procedures under which those loans have been originated and serviced. If any of these representations and warranties are incorrect, we may be required to indemnify the purchaser for any related losses, or we may be required to repurchase part or all of the affected loans. We may also be required to repurchase loans as a result of borrower fraud or in the event of early payment default by the borrower on a loan we have sold. If we are required to make any indemnity payments or repurchases and do not have a remedy available to us against a solvent counterparty to the loan or loans, we may not be able to recover our losses resulting from these indemnity payments and repurchases. Consequently, our results of operations may be adversely affected.

Risks Related to Our Operations

We must attract and retain skilled personnel.

Our success depends, in substantial part, on our ability to attract and retain skilled, experienced personnel. Competition for qualified candidates in the activities and markets that we serve is intense. If we are not able to



hire or retain these key individuals, we may be unable to execute our business strategies and may suffer adverse consequences to our business, financial condition and results of operations.

If we are unable to attract and retain qualified employees, or do so at rates necessary to maintain our competitive position, or if compensation costs required to attract and retain employees increase materially, our business and results of operations could be materially adversely affected.

A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.

Our ability to adequately conduct and grow our business is dependent on our ability to create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways including employee fraud, theft or malfeasance; customer fraud; and control lapses in bank operations and information technology. Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered. Our dependence on our employees and automated systems, including the automated systems used by acquired entities and third parties, to record and process transactions may further increase the risk that technical failures or tampering of those systems will result in losses that are difficult to detect. We are also subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control. In addition, products, services and processes are continually changing and we may not fully appreciate or identify new operational risks that may arise from such changes. Failure to maintain an appropriate operational infrastructure can lead to loss of service to customers, additional expenditures related to the detection and correction of operational failures, reputational damage and loss of customer confidence, legal actions, and noncompliance with various laws and regulations.

We continuously monitor our operational and technological capabilities and make modifications and improvements when we believe it will be cost effective to do so. However, there are inherent limits to such capabilities. In some instances, we may build and maintain these capabilities ourselves. We also outsource some of these functions to third parties. These third parties may experience errors or disruptions that could adversely impact us and over which we may have limited control. Third parties may fail to properly perform services or comply with applicable laws and regulations, and replacing third party providers could entail significant delay and expense. We also face risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into existing businesses.

An interruption or breach in our information systems or infrastructure, or those of third parties, could disrupt our business, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.

Our business is dependent on our ability to process and monitor a large number of transactions on a daily basis and to securely process, store and transmit confidential and other information on our computer systems and networks. We rely heavily on our information and communications systems and those of third parties who provide critical components of our information and communications infrastructure. These systems are critical to the operation of our business and essential to our ability to perform day-to-day operations. Our financial, accounting, data processing or other information systems and facilities, or those of third parties on whom we rely, may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a spike in transaction volume, cyber-attack or other unforeseen catastrophic events, which may adversely affect our ability to process transactions or provide services.

Although we make continuous efforts to maintain the security and integrity of our information systems and have not experienced a significant, successful cyber-attack, threats to information systems continue to evolve and there can be no assurance that our security efforts and measures, or those of third parties on whom we rely, will continue to be effective. The risk of a security breach or disruption, particularly through cyber-attack or cyber



intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Threats to our information systems may originate externally from third parties such as foreign governments, organized crime and other hackers, outsourced or infrastructure-support providers and application developers, or may originate internally. In addition, customers may use computers, smartphones and other mobile devices not protected by our control systems to access our products and services, including through bank kiosks or other remote locations. As a financial institution, we face a heightened risk of a security breach or disruption from attempts to gain unauthorized access to our and our customers’ data and financial information, whether through cyber-attack, cyber intrusion over the internet, malware, computer viruses, attachments to e-mails, spoofing, phishing, or spyware.

As a result, our information, communications and related systems, software and networks may be vulnerable to breaches or other significant disruptions that could: (1) disrupt the proper functioning of our networks and systems, which could in turn disrupt our operations and those of certain of our customers; (2) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers, including account numbers and other financial information; (3) result in a violation of applicable privacy and other laws, subjecting us to additional regulatory scrutiny and exposing us to civil litigation and possible financial liability; (4) require significant management attention and resources to remedy the damages that result; and (5) harm our reputation or impair our customer relationships. The occurrence of such failures, disruptions or security breaches could have a negative impact on our results of operations, financial condition and cash flows. To date we have not experienced an attack that has impacted our results of operations, financial condition and cash flows. However, “denial of service” attacks have recently been launched against a number of other large financial services institutions. Such attacks adversely affected the performance of certain institutions’ websites, and, in some instances, prevented customers from accessing secure websites for consumer and commercial applications. Future attacks could prove to be even more disruptive and damaging, and as threats continue to evolve, we may not be able to anticipate or prevent all such attacks.

Natural and man-made disasters could affect our ability to operate.

Our market areas are susceptible to hurricanes. Natural disasters, such as hurricanes, and man-made disasters, such as oil spills in the Gulf of Mexico, can disrupt our operations; result in significant damage to our properties or properties and businesses of our borrowers, including property pledged as collateral; interrupt our ability to conduct business; and negatively affect the local economies in which we operate.

We cannot predict whether or to what extent damage caused by future hurricanes and other disasters will affect our operations or the economies in our market areas, but such events could cause a decline in loan originations, a decline in the value or destruction of properties securing the loans and an increase in the risk of delinquencies, foreclosures or loan losses.

We are exposed to reputational risk.

Negative public opinion can result from our actual or alleged conduct in activities, such as lending practices, data security practices, corporate governance policies and decisions, and acquisitions, any of which may inflict damage to our reputation. Additionally, actions taken by government regulators and community organizations may also damage our reputation. Negative public opinion could adversely affect our ability to attract and retain customers and can expose us to litigation and regulatory action.

Returns on pension plan assets may not be adequate to cover future funding requirements.

Investments in the portfolio of our defined benefit pension plan may not provide adequate returns to fully fund benefits as they come due, thus causing higher annual plan expenses and requiring additional contributions by us.



The value of our goodwill and other intangible assets may decline in the future.

A significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of our common stock may necessitate our taking charges in the future related to the impairment of our goodwill. Future regulatory actions could also have a material impact on assessments of goodwill for impairment.

Adverse events or circumstances could impact the recoverability of our intangible assets including loss of core deposits, significant losses of credit card accounts and/or balances, increased competition or adverse changes in the economy. To the extent these intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded, which could have a material adverse effect on our results of operations.

Risks Related to Our Business Strategy

We are subject to industry competition which may have an impact upon our success.

Our profitability depends on our ability to compete successfully in a highly competitive market for banking and financial services, and we expect competition to intensify. Certain of our competitors are larger and have more resources than we do. We face competition in our regional market areas from other commercial banks, savings associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, mutual funds and insurance companies, and other financial institutions that offer similar services. Some of our nonbank competitors are not subject to the same extensive supervision and regulation to which we or the Bank are subject, and may accordingly have greater flexibility in competing for business. Over time, certain sectors of the financial services industry have become more concentrated, as institutions involved in a broad range of financial services have been acquired by other firms. These developments could result in our competitors gaining greater capital and other resources, or being able to offer a broader range of products and services with more geographic range.

Another competitive factor is that the financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. Our future success may depend, in part, on our ability to use technology competitively to provide products and services that provide convenience to customers and create additional efficiencies in our operations. The widespread adoption of new technologies could require us to make substantial capital expenditures to modify or adapt our systems to remain competitive and offer new products and services. We may not be successful in introducing new products and services in response to industry trends or developments in technology, or those new products may not be accepted by customers.

If we are unable to successfully compete for new customers and to retain our current customers, our business, financial condition or results of operations may also be adversely affected, perhaps materially. In particular, if we experience an outflow of deposits as a result of our customers desiring to do business with our competitors, we may be forced to rely more heavily on borrowings and other sources of funding to operate our business and meet withdrawal demands, thereby adversely affecting our net interest margin.

Our future growth and financial performance may be negatively affected if we are unable to successfully execute our growth plans, which may include acquisitions and de novo branching.

We may not be able to continue our organic, or internal, growth, which depends upon economic conditions, our ability to identify appropriate markets for expansion, our ability to recruit and retain qualified personnel, our ability to fund growth at a reasonable cost, sufficient capital to support our growth initiatives, competitive factors, banking laws, and other factors.

We may seek to supplement our internal growth through acquisitions. We cannot predict the number, size or timing of acquisitions, or whether any such acquisition will occur at all. Our acquisition efforts have traditionally



focused on targeted banking entities in markets in which we currently operate and markets in which we believe we can compete effectively. However, as consolidation of the financial services industry continues, the competition for suitable acquisition candidates may increase. We may compete with other financial services companies for acquisition opportunities, and many of these competitors have greater financial resources than we do and may be able to pay more for an acquisition than we are able or willing to pay.

We also may be required to use a substantial amount of our available cash and other liquid assets, or seek additional debt or equity financing, to fund future acquisitions. Such events could make us more susceptible to economic downturns and competitive pressures, and additional debt service requirements may impose a significant burden on our results of operations and financial condition. If we are unable to locate suitable acquisition candidates willing to sell on terms acceptable to us, or we are otherwise unable to obtain additional debt or equity financing necessary for us to continue making acquisitions, we would be required to find other methods to grow our business and we may not grow at the same rate we have in the past, or at all.

We must generally satisfy several conditions, including receiving federal regulatory approval, before we can acquire a bank or bank holding company. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, financial condition, and future prospects. The regulators also review current and projected capital ratios and levels; the competence, experience, and integrity of management and its record of compliance with laws and regulations; the convenience and needs of the communities to be served (including the acquiring institution’s record of compliance under the Community Reinvestment Act) and the effectiveness of the acquiring institution in combating money laundering activities. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. We may also be required to sell banks or branches as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition. Additionally, federal and/or state regulators may charge us with regulatory and compliance failures of an acquired business that occurred prior to the date of acquisition, and such failures may result in the imposition of formal or informal enforcement actions.

We cannot assure you that we will be able to successfully consolidate any business or assets we acquire with our existing business. The integration of acquired operations and assets may require substantial management effort, time and resources and may divert management’s focus from other strategic opportunities and operational matters. Acquisitions may not perform as expected when the transaction was consummated and may be dilutive to our overall operating results. Specifically, acquisitions could result in higher than expected deposit attrition, loss of key employees or other consequences that could adversely affect our ability to maintain relationships with customers and employees. We may also sell or consider selling one or more of our businesses. Such a sale would generally be subject to certain federal and/or state regulatory approvals, and may not be able to generate gains on sale or related increases in shareholder’s equity commensurate with desirable levels.

In addition to the acquisition of existing financial institutions, as opportunities arise, we plan to continue de novo branching as a part of our internal growth strategy and possibly enter into new markets through de novo branching. De novo branching and any acquisition carry numerous risks, including the following:



the inability to obtain all required regulatory approvals;



significant costs and anticipated operating losses associated with establishing a de novo branch or a new bank;



the inability to secure the services of qualified senior management;



the failure of the local market to accept the services of a new bank owned and managed by a bank holding company headquartered outside of the market area of the new bank;



economic downturns in the new market;



the inability to obtain attractive locations within a new market at a reasonable cost; and




the additional strain on management resources and internal systems and controls.

We have experienced to some extent many of these risks with our de novo branching to date.

Changes in retail distribution strategies and consumer behavior may adversely impact our investments in bank premises, equipment and other assets and may lead to increased expenditures to change our retail distribution channel.

We have significant investments in bank premises and equipment for our branch network. Advances in technology such as ecommerce, telephone, internet and mobile banking, and in-branch self-service technologies including automated teller machines and other equipment, as well as an increasing customer preference for these other methods of accessing our products and services, could decrease the value of our branch network or other retail distribution physical assets and may cause us to change our retail distribution strategy, close and/or sell certain branches or parcels of land held for development and restructure or reduce our remaining branches and work force. These actions could lead to losses on these assets or could adversely impact the carrying value of any long-lived assets and may lead to increased expenditures to renovate, reconfigure or close a number of our remaining branches or to otherwise reform our retail distribution channel.

Risks Related to the Legal and Regulatory Environment

We are subject to regulation by various federal and state entities.

We are subject to the regulations of the Commission, the Federal Reserve, the FDIC, the CFPB and the MDBCF. New regulations issued by these agencies may adversely affect our ability to carry on our business activities. We are subject to various federal and state laws, and certain changes in these laws and regulations may adversely affect our operations. Other than the federal securities laws, the laws and regulations governing our business are intended primarily for the protection of our depositors, our customers, the financial system and the FDIC insurance fund, not our shareholders or other creditors. Further, we must obtain approval from our regulators before engaging in certain activities, and our regulators have the ability to compel us to, or restrict us from, taking certain actions entirely, such as increasing dividends, entering into merger or acquisition transactions, acquiring or establishing new branches, and entering into certain new businesses. Noncompliance with certain of these regulations may impact our business plans, including our ability to branch, offer certain products, or execute existing or planned business strategies.

The U.S. government responded to the 2008 financial crisis at an unprecedented level by introducing various actions and passing legislation such as the Dodd-Frank Act that place increased focus and scrutiny on the financial services industry. The Dodd-Frank Act contains various provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as occurred in 2008-2009. New regulations from the CFPB, which was established by the Dodd-Frank Act, such as the Ability to Repay Rules, may materially raise the risk of consummating consumer credit transactions. The full impact on our business and operations will not be fully known for years until regulations implementing the statute are fully implemented and applied. The new rules issued in the wake of the Dodd-Frank Act may have a material impact on our operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations.

Additionally, the rules implementing the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act may have significant impacts on our regulatory capital levels. Basel III and its regulations will require bank holding companies and banks to undertake significant activities to demonstrate compliance with the new and higher capital standards. Compliance with these rules impose additional costs on banking entities and their holding companies. The need to maintain more and higher quality capital as well as greater liquidity going forward could limit our business activities and our ability to maintain dividends. In addition, the new liquidity standards could require us to increase our holdings of highly liquid short-term investments, thereby reducing our



ability to invest in longer-term, potentially higher yielding assets. We may also be required to pay significantly higher deposit insurance premiums if the number of bank failures or the cost of resolving failed banks increase. For additional information regarding the Dodd-Frank Act, Basel III and other regulations to which our business is subject, see “Supervision and Regulation.”

Any of the laws or regulations to which we are subject, including tax laws, regulations or their interpretations, may be modified or changed from time to time, and we cannot be assured that such modifications or changes will not adversely affect us. Failure to appropriately comply with any such laws or regulations could result in sanctions by regulatory authorities, civil monetary penalties or damage to our reputation, all of which could adversely affect our business, financial condition or results of operations.

Changes in accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations.

The preparation of consolidated financial statements in conformity with the accounting rules and regulations of the Commission and the Financial Accounting Standards Board (the “FASB”) and with U.S. generally accepted accounting principles (“GAAP”) requires management to make significant estimates and assumptions that affect our financial statements by affecting the value of our assets or liabilities and results of operations. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because materially different amounts may be reported if different estimates or assumptions are used. If such estimates or assumptions underlying our financial statements are incorrect, our financial condition and results of operations could be adversely affected.

From time to time, the FASB and the Commission change the financial accounting and reporting standards or the interpretation of such standards that govern the preparation of our external financial statements. These changes are beyond our control, can be difficult to predict, may require extraordinary efforts or additional costs to implement and could materially impact how we report our financial condition and results of operations. Additionally, it is possible, though unlikely, that we could be required to apply a new or revised standard retrospectively, resulting in the restatement of prior period financial statements in material amounts.

We and other financial institutions have been the subject of increased litigation, investigations and other proceedings which could result in legal liability and damage to our reputation.

We and certain of our directors, officers and subsidiaries may be named from time to time as defendants in various class actions and other litigation relating to our business and activities. Past, present and future litigation has included or could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental, law enforcement and self-regulatory agencies regarding our business. These matters could result in adverse judgments, settlements, fines, penalties, injunctions, amendments and/or restatements of our Commission filings and/or financial statements, determinations of material weaknesses in our disclosure controls and procedures or other relief. Like other financial institutions and companies, we are also subject to risk from employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against us, as well as matters in which we are involved that are ultimately determined in our favor, could materially adversely affect our business, financial condition or results of operations, cause significant reputational harm to our business, divert management attention from the operation of our business and/or result in additional litigation.

In addition, in recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. In the future, we could become subject to claims based on this or other evolving legal theories.



Risks Related to Our Common Stock

Securities issued may be senior to our common stock and may have a dilutive effect.

Our common stock ranks junior to all of our existing and future indebtedness with respect to distributions and liquidation. In addition, future issuances of equity securities, including pursuant to outstanding options, could dilute the interests of our existing shareholders, including you, and could cause the market price of our common stock to decline. The issuance of any additional shares of common or preferred stock could be substantially dilutive to shareholders of our common stock. Moreover, to the extent that we issue restricted stock units, phantom shares, stock appreciation rights, options or warrants to purchase our common stock in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution.

Holders of our shares of common stock do not have preemptive rights. Additionally, sales of a substantial number of shares of our common stock in the public markets and the availability of those shares for sale could adversely affect the market price of our common stock.

Our ability to deliver and pay dividends depends primarily upon the results of operations of our subsidiaries, and we may not pay dividends in the future.

We are a bank holding company that conducts substantially all of our operations through our subsidiary Bank. As a result, our ability to make dividend payments on our common stock will depend primarily upon the receipt of dividends and other distributions from the Bank.

The ability of the Bank to pay dividends or make other payments to us, as well as our ability to pay dividends on our common stock, is limited by the Bank’s obligation to maintain sufficient capital and by other general regulatory restrictions on its dividends, which have tightened since the financial crisis. The Federal Reserve has stated that bank holding companies should not pay dividends from sources other than current earnings. If these requirements are not satisfied, we will be unable to pay dividends on our common stock.

We may also decide to limit the payment of dividends even when we have the legal ability to pay them in order to retain earnings for use in our business, which could adversely affect the market value of our common stock. There can be no assurance of whether or when we may pay dividends in the future.

Anti-takeover provisions in our amended articles of incorporation and bylaws, Mississippi law, and our Shareholder Rights Plan could make a third party acquisition of us difficult and may adversely affect share value.

Our amended articles of incorporation and bylaws contain provisions that make it more difficult for a third party to acquire us (even if doing so might be beneficial to our shareholders) and for holders of our securities to receive any related takeover premium for their securities. In addition, under our Shareholder Rights Plan, “rights” are issued to all Company common shareholders that, if activated upon an attempted unfriendly acquisition, would allow our shareholders to buy our common stock at a reduced price, thereby minimizing the risk of any potential hostile takeover.

We are also subject to certain provisions of state and federal law and our articles of incorporation that may make it more difficult for someone to acquire control of us. Under federal law, subject to certain exemptions, a person, entity, or group must notify the federal banking agencies before acquiring 10% or more of the outstanding voting stock of a bank holding company, including our shares. Banking agencies review the acquisition to determine if it will result in a change of control. The banking agencies have 60 days to act on the notice, and take into account several factors, including the resources of the acquirer and the antitrust effects of the acquisition. Additionally, a bank holding company must obtain the prior approval of the Federal Reserve before, among other things,



acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank. There are also Mississippi statutory provisions and provisions in our articles of incorporation that may be used to delay or block a takeover attempt. As a result, these statutory provisions and provisions in our articles of incorporation could result in our being less attractive to a potential acquirer and limit the price that investors might be willing to pay in the future for shares of our common stock.






The Company’s main office, which is the headquarters of the holding company, is located at One Hancock Plaza, in Gulfport, Mississippi. The Bank makes portions of their main office facilities and certain other facilities available for lease to third parties, although such incidental leasing activity is not material to the Company’s overall operations.

The Company operates 235 full service banking and financial services offices and 283 automated teller machines across a Gulf south corridor comprising south Mississippi; southern and central Alabama; southern Louisiana; the northern, central, and Panhandle regions of Florida; and Houston, Texas. The Company owns approximately 49% of these facilities, and the remaining banking facilities are subject to leases, each of which we consider reasonable and appropriate for its location. We ensure that all properties, whether owned or leased, are maintained in suitable condition. We also evaluate our banking facilities on an ongoing basis to identify possible under-utilization and to determine the need for functional improvements, relocations, closures or possible sales. The Bank and subsidiaries of the Bank hold a variety of property interests acquired in settlement of loans.



We and our subsidiaries are party to various legal proceedings arising in the ordinary course of business. We do not believe that loss contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on our consolidated financial position or liquidity.



Not applicable.





Market Information

The Company’s common stock trades on the NASDAQ Global Select Market under the ticker symbol “HBHC”. The following table sets forth the high and low sale prices of the Company’s common stock as reported on the NASDAQ Global Select Market. These prices do not reflect retail mark-ups, mark-downs or commissions.





4th quarter

   $ 35.67       $ 28.68       $ 0.24   

3rd quarter

     36.47         31.25         0.24   

2nd quarter

     37.86         32.02         0.24   

1st quarter

     38.50         32.66         0.24   



4th quarter

   $ 37.12       $ 30.09       $ 0.24   

3rd quarter

     33.85         29.00         0.24   

2nd quarter

     30.93         25.00         0.24   

1st quarter

     33.59         29.37         0.24   

There were 9,885 active holders of record of the Company’s common stock at January 31, 2015 and 80,436,669 shares outstanding. On January 31, 2015, the high and low sale prices of the Company’s common stock as reported on the NASDAQ Global Select Market were $26.66 and $25.79, respectively.

The principal sources of funds to the Company to pay cash dividends are the dividends received from Whitney Bank, Gulfport, Mississippi. Consequently, dividends are dependent upon the Bank’s earnings, capital needs, regulatory policies as well as statutory and regulatory limitations. Federal and state banking laws and regulations restrict the amount of dividends and loans a bank may make to its parent company. Dividends paid to the Company by Whitney Bank are subject to approval by the Commissioner of Banking and Consumer Finance of the State of Mississippi. We do not expect regulatory restrictions to affect our ability to pay cash dividends. Although no assurance can be given that Hancock Holding Company will continue to declare and pay regular quarterly cash dividends on its common stock, the Bank has paid regular cash dividends since 1937 and Hancock Holding Company has paid regular cash dividends since its organization.

Stock Performance Graph

The following performance graph and related information are neither “soliciting material” nor “filed” with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent the Company specifically incorporates it by reference into such filing.



The performance graph compares the cumulative five-year shareholder return on the Company’s common stock, assuming an investment of $100 on December 31, 2009 and the reinvestment of dividends thereafter, to that of the common stocks of United States companies reported in the Nasdaq Total Return Index and the common stocks of the KBW Regional Banks Total Return Index. The KBW Regional Banks Total Return Index (KRX) is a proprietary stock index of Keefe, Bruyette & Woods, Inc., that tracks the returns of 50 regional banking companies throughout the United States.




Issuer Purchases of Equity Securities

The Board of Directors authorized a new common stock buyback program on July 24, 2014 for up to 5%, or approximately 4 million shares, of the Company’s common stock issued and outstanding. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. The buyback authorization will expire December 31, 2015. During the year, the Company repurchased 1.5 million shares at an average price of $31.13 per share under the 2014 buyback program.


     Total number
of shares or
units purchased
per share
     Total number of
shares purchased
as a part of  publicly
announced plans

or programs
     Maximum number
of shares

that may yet be
purchased under
plans or programs

Jul 1, 2014—Jul 31, 2014

     —         $ —           —           4,093,149   

Aug 1, 2014—Aug 31, 2014

     221,729         32.41         221,729         3,871,420   

Sep 1, 2014—Sep 30, 2014

     83,534         33.29         83,534         3,787,886   

Dec 1, 2014—Dec 31, 2014

     1,224,279         30.75         1,224,279         2,563,607   











     1,529,542       $ 31.13         1,529,542      










The Company’s board of directors approved a stock repurchase program on April 30, 2013 that authorized the repurchase of up to 5% of the Company’s outstanding common stock. On May 8, 2013 Hancock entered into an accelerated share repurchase (ASR) transaction with Morgan Stanley & Co. LLC (Morgan Stanley). In the ASR transaction, the Company paid $115 million to Morgan Stanley and received from them initially 2.8 million shares of Hancock common stock and received an additional 0.6 million upon final settlement on May 5, 2014. The 2013 program was superseded by the 2014 program.




The following tables set forth certain selected historical consolidated financial data and should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated Financial Statements and Notes thereto included elsewhere herein.


     Year Ended December 31,  
(in thousands, except per share data)    2014      2013      2012      2011     2010  

Income Statement:


Interest income

   $ 692,813       $ 722,210       $ 762,549       $ 592,204      $ 352,558   

Interest income (te)

     703,460         732,620         774,134         604,130        364,385   

Interest expense

     38,119         41,479         51,682         70,971        82,345   
















Net interest income (te)

     665,341         691,141         722,452         533,159        282,040   

Provision for loan losses

     33,840         32,734         54,192         38,732        65,991   

Noninterest income excluding securities transactions

     227,999         246,038         252,195         206,427        136,949   

Securities transactions gains/(losses)

     —           105         1,552         (91     —     

Operating expense (excluding amortization of intangibles)

     579,869         648,804         681,000         577,463        276,532   

Amortization of intangibles

     26,797         29,470         32,067         16,551        2,728   
















Income before income taxes

     242,187         215,866         197,355         94,823        61,911   

Income tax expense

     66,465         52,510         45,613         18,064        9,705   
















Net income

   $ 175,722       $ 163,356       $ 151,742       $ 76,759      $ 52,206   
















Securities transactions gains/(losses)

     —           105         1,552         (91     —     

Nonoperating expense items


Merger-related expenses

     —           —           45,789         86,762        3,167   

Sub-debt early redemption costs

     —           —           5,336         —          —     

Expense & efficiency initiative and other items

     25,686         38,003         —           —          —     
















Total nonoperating expense items

     25,686         38,003         51,125         86,762        3,167   

Taxes on adjustments

     7,263         13,264         17,350         30,398        1,108   
















Total adjustments (net of taxes)

     18,423         24,634         32,223         56,455        2,059   
















Operating income (a)

   $ 194,145       $ 187,990       $ 183,965       $ 133,214      $ 54,265   
















Purchase accounting adjustments (net of taxes)

     34,954         66,890         60,587         34,249        12,454   

Core income (b)

   $ 159,191       $ 121,100       $ 123,378       $ 98,965      $ 41,811   
















Common Share Data:


Earnings per share:


Basic earnings per share

   $ 2.10       $ 1.93       $ 1.77       $ 1.16      $ 1.41   

Diluted earnings per share

     2.10         1.93         1.75         1.15        1.40   

Operating earnings per share: (a)


Basic operating earnings per share

     2.32         2.22         2.15         2.03        1.47   

Diluted operating earnings per share

     2.32         2.22         2.13         2.02        1.46   

Core earnings per share: (b)


Basic operating earnings per share

     1.90         1.43         1.43         1.50        1.13   

Diluted operating earnings per share

     1.90         1.43         1.43         1.49        1.12   

Cash dividends paid

     0.96         0.96         0.96         0.96        0.96   

Book value per share (period-end)

     30.74         29.49         28.91         27.95        23.22   

Tangible book value per share (period-end)

     21.37         19.94         19.27         17.76        21.18   


(a) Net income less tax-effected nonoperating expense items and securities gains/losses. Management believes that this is a useful financial measure because it enables investors to assess ongoing operations.
(b) Operating income excluding tax-effected purchase accounting adjustments. Management believes that reporting on core income provides a useful measure of financial performance that helps investors determine whether management is successfully executing its strategic initiatives.



     At and For the Years Ended December 31,  
(in thousands)    2014     2013     2012     2011     2010  

Period-End Balance Sheet Data:


Total loans, net of unearned income

   $ 13,895,276      $ 12,324,817      $ 11,577,802      $ 11,177,026      $ 4,957,164   

Loans held for sale

     20,252        24,515        50,605        72,378        21,866   


     3,826,454        4,033,124        3,716,460        4,496,900        1,488,885   

Short-term investments

     802,948        268,839        1,500,188        1,184,419        639,164   
















Total earning assets

     18,544,930        16,651,295        16,845,055        16,930,723        7,107,079   
















Allowance for loan losses

     (128,762     (133,626     (136,171     (124,881     (81,997


     621,193        625,675        628,877        651,162        61,631   

Other intangible assets, net

     132,810        159,773        189,409        211,075        13,203   

Other assets

     1,577,095        1,706,134        1,937,315        2,106,017        1,038,411   
















Total assets

   $ 20,747,266      $ 19,009,251      $ 19,464,485      $ 19,774,096      $ 8,138,327   
















Noninterest-bearing deposits

   $ 5,945,208      $ 5,530,253      $ 5,624,127      $ 5,516,336      $ 1,127,246   

Interest-bearing transaction and savings deposits

     6,531,628        6,162,959        6,038,002        5,602,963        1,995,082   

Interest-bearing public fund deposits

     1,982,616        1,571,532        1,580,260        1,620,260        1,216,701   

Time deposits

     2,113,379        2,095,772        2,501,799        2,974,020        2,436,690   
















Total interest-bearing deposits

     10,627,623        9,830,263        10,120,061        10,197,243        5,648,473   

Total deposits

     16,572,831        15,360,516        15,744,188        15,713,579        6,775,719   

Short-term borrowings

     1,151,573        657,960        639,133        1,044,455        374,848   

Long-term debt

     374,371        385,826        396,589        353,891        376   

Other liabilities

     176,089        179,880        231,297        295,008        130,836   

Stockholders’ equity

     2,472,402        2,425,069        2,453,278        2,367,163        856,548   
















Total liabilities & stockholders’ equity

   $ 20,747,266      $ 19,009,251      $ 19,464,485      $ 19,774,096      $ 8,138,327   
















Average Balance Sheet Data:


Total loans, net of unearned income

   $ 12,938,869      $ 11,700,218      $ 11,238,690      $ 8,479,846      $ 4,993,485   

Loans held for sale

     16,540        24,986        46,049        34,175        12,268   

Securities (a)

     3,816,724        4,140,051        4,063,817        3,074,373        1,559,019   

Short-term investments

     423,359        578,613        771,523        955,325        698,042   
















Total earning assets

     17,195,492        16,443,868        16,120,079        12,543,719        7,262,814   

Allowance for loan losses

     (129,642     (137,897     (136,257     (102,784     (73,190

Goodwill and other intangible assets

     768,047        799,996        820,887        498,463        58,778   

Other assets

     1,602,930        1,823,051        2,130,660        1,782,673        1,177,832   
















Total assets

   $ 19,436,827      $ 18,929,018      $ 18,935,369      $ 14,722,071      $ 8,426,234   
















Noninterest-bearing deposits

   $ 5,641,792      $ 5,393,955      $ 5,251,391      $ 3,400,064      $ 1,076,829   

Interest-bearing transaction and savings deposits

     6,173,683        5,962,114        5,827,370        4,100,381        1,940,470   

Interest-bearing public fund deposits

     1,530,972        1,410,679        1,451,459        1,314,633        1,163,993   

Time deposits

     2,053,546        2,350,488        2,579,963        2,901,475        2,736,206   
















Total interest-bearing deposits

     9,758,201        9,723,281        9,858,792        8,316,489        5,840,669   

Total deposits

     15,399,993        15,117,236        15,110,183        11,716,553        6,917,498   

Short-term borrowings

     1,005,680        806,082        843,798        789,022        492,275   

Long-term debt

     379,692        389,153        338,875        211,976        23,351   

Other liabilities

     176,514        229,983        241,710        203,403        127,400   

Stockholders’ equity

     2,474,948        2,386,564        2,400,803        1,801,117        865,710   
















Total liabilities & stockholders’ equity

   $ 19,436,827      $ 18,929,018      $ 18,935,369      $ 14,722,071      $ 8,426,234   

















(a) Average securities does not include unrealized holding gains/losses on available for sale securities.



    Year Ended December 31,  
($ in thousands)   2014     2013     2012     2011     2010  

Performance Ratios:


Return on average assets

    0.90     0.86     0.80     0.52     0.62

Return on average assets—operating (a)

    1.00     0.99     0.97     0.90     0.64

Return on average common equity

    7.10     6.84     6.32     4.26     6.03

Return on average common equity—operating (a)

    7.84     7.88     7.66     7.40     6.27

Return on average tangible common equity

    10.30     10.30     9.72     5.98     6.62

Return on average tangible common equity—operating (a)

    11.37     11.85     11.78     10.37     6.88

Earning asset yield (tax equivalent - te)

    4.09     4.45     4.80     4.82     5.01

Total cost of funds

    0.22     0.25     0.32     0.57     1.13

Net interest margin (te)

    3.87     4.20     4.48     4.25     3.88

Core net interest margin (te)(b)

    3.33     3.39     3.74     3.84     3.67

Noninterest income excluding securities transactions as a percent of total revenue(te)

    25.52     26.25     25.88     27.91     32.69

Efficiency ratio (c)

    62.03     65.17     64.63     66.35     65.24

Average loan/deposit ratio

    84.02     77.56     74.68     72.67     72.36

FTE employees (period-end)

    3,794        3,978        4,235        4,736        2,271   

Capital Ratios:


Common stockholders’ equity to total assets

    11.92     12.76     12.60     11.97     10.52

Tangible common equity ratio

    8.59     9.00     8.77     7.96     9.69

Tier 1 leverage (d)

    9.17     9.34     9.10     8.17     9.65

Asset Quality Information:


Nonaccrual loans (e)

  $ 79,537      $ 99,686      $ 137,615      $ 103,270      $ 120,986   

Restructured loans

    8,971        9,272        16,437        14,003        3,929   
















Total nonperforming loans

    88,508        108,958        154,052        117,273        124,915   
















Other real estate (ORE) and foreclosed assets

    59,569        76,979        102,072        159,751        33,277   
















Total nonperforming assets

  $ 148,077      $ 185,937      $ 256,124      $ 277,024      $ 158,192   
















Nonperforming assets to loans + ORE and foreclosed assets

    1.06     1.50     2.19     2.44     3.17

Accruing loans 90 days past due (f)

  $ 4,825      $ 10,387      $ 13,244      $ 5,880      $ 1,492   

Accruing loans 90 days past due as a percent of loans

    0.03     0.08     0.11     0.05     0.03

Nonperforming assets + accruing loans 90 days past due to loans + foreclosed assets

    1.10     1.58     2.31     2.50     3.19

Net charge-offs—non-FDIC acquired

  $ 17,119      $ 24,309      $ 55,031      $ 33,805      $ 50,682   

Net charge-offs—FDIC acquired

  $ 2,501      $ 2,355      $ 26,069      $ 11,475      $ —     

Net charge-offs—non-FDIC acquired to average loans

    0.13     0.21     0.49     0.40     1.01

Allowance for loan losses

  $ 128,762      $ 133,626      $ 136,171      $ 124,881      $ 81,997   

Allowance for loan losses to period-end loans

    0.93     1.08     1.18     1.12     1.65

Allowance for loan losses to nonperforming loans and accruing loans 90 days past due

    137.96     111.97     81.40     101.40     64.87


(a) Excludes tax-effected nonoperating expense items and securities transactions. See operating income calculation previously in Selected Financial Data.
(b) Reported taxable equivalent (te) net interest income, excluding net purchase accounting adjustments, expressed as a percentage of average earning assets.
(c) Noninterest expense as a percent of total revenue (te) before amortization of purchased intangibles, securities transactions, and nonoperating expense items.
(d) Calculated as Tier 1 capital divided by average total assets for leverage capital purposes.
(e) Included in nonaccrual loans are $7.0 million, $15.7 million, $3.0 million, $2.5 million, and $8.7 million of nonaccruing restructured loans at December 31, 2014, 2013, 2012, 2011, and 2010, respectively. Total excludes acquired credit-impaired loans with an accretable yield.
(f) Nonaccrual loans and accruing loans past due 90 days or more do not include acquired-impaired loans with an accretable yield.



Supplemental Asset Quality Information                            
(in thousands)    Originated
Loans (a)
Loans  (b)



Nonaccrual loans (c)

   $ 71,296       $ 6,139       $ 2,102       $ 79,537   

Restructured loans

     8,971         —           —           8,971   













Total nonperforming loans

     80,267         6,139         2,102         88,508   

ORE and foreclosed assets (d)

     40,148         —           19,421         59,569   













Total non-performing assets

   $ 120,415       $ 6,139       $ 21,523       $ 148,077   













Accruing loans 90 days past due

   $ 4,564       $ 261       $ —         $ 4,825   

Allowance for loan losses

   $ 97,701       $ 477       $ 30,584       $ 128,762   



Nonaccrual loans (c)

   $ 74,341       $ 21,801       $ 3,544       $ 99,686   

Restructured loans

     8,765         507         —           9,272   













Total nonperforming loans

     83,106         22,308         3,544         108,958   

ORE and foreclosed assets (d)

     51,240         —           25,739         76,979   













Total non-performing assets

   $ 134,346       $ 22,308       $ 29,283       $ 185,937   













Accruing loans 90 days past due

   $ 3,298       $ 7,089       $ —         $ 10,387   

Allowance for loan losses

   $ 78,885       $ 1,647       $ 53,094       $ 133,626   



Nonaccrual loans (c)

   $ 103,429       $ 30,086       $ 4,100       $ 137,615   

Restructured loans

     11,673         4,764         —           16,437   













Total nonperforming loans

     115,102         34,850         4,100         154,052   

ORE and foreclosed assets (d)

     75,771         —           26,301         102,072   













Total non-performing assets

   $ 190,873       $ 34,850       $ 30,401       $ 256,124   













Accruing loans 90 days past due

   $ 13,244       $ —         $ —         $ 13,244   

Allowance for loan losses

   $ 78,774       $ 788       $ 56,609       $ 136,171   



Nonaccrual loans (c)

   $ 83,306       $ 1,118       $ 18,846       $ 103,270   

Restructured loans

     14,003         —           —           14,003   













Total nonperforming loans

     97,309         1,118         18,846         117,273   

ORE and foreclosed assets (d)

     115,769         —           43,982         159,751   













Total non-performing assets

   $ 213,078       $ 1,118       $ 62,828       $ 277,024   













Accruing loans 90 days past due

   $ 5,880       $ —         $ —         $ 5,880   

Allowance for loan losses

   $ 83,246       $ —         $ 41,635       $ 124,881   



Nonaccrual loans (c)

   $ 75,700       $ —         $ 45,286       $ 120,986   

Restructured loans

     3,929         —           —           3,929   













Total nonperforming loans

     79,629         —           45,286         124,915   

ORE and foreclosed assets (d)

     17,595         —           15,682         33,277   













Total non-performing assets

   $ 97,224       $ —         $ 60,968       $ 158,192   













Accruing loans 90 days past due

   $ 1,492       $ —         $ —         $ 1,492   

Allowance for loan losses

   $ 81,325       $ —         $ 672       $ 81,997   


(a) Loans which have been acquired and no allowance brought forward in accordance with acquisition accounting. Acquired-performing loans in pools with fully accreted purchase fair value discounts are reported as originated loans, resulting in changes in classification between periods.
(b) Loans acquired in an FDIC-assisted transaction. Non-single family loss share agreement expired at 12/31/14. As of 12/31/14, $196.7 million in loans remain covered by the FDIC single family loss share agreement, providing considerable protection against credit risk.
(c) Included in nonaccrual loans are $7.0 million, $15.7 million, $3.0 million, $2.5 million, and $8.7 million of nonaccruing restructured loans at December 31, 2014, 2013, 2012, 2011, and 2010, respectively. Total excludes acquired credit-impaired loans with an accretable yield.
(d) ORE received in settlement of FDIC acquired loans is included with ORE from originated loans. ORE received in settlement of FDIC acquired loans includes $7.1 million of assets that remain covered under the single family FDIC loss share agreement, until the agreement expires.



Loans Outstanding                FDIC        
(in thousands)    Originated
Loans (a)
Loans (b)



Commercial non-real estate loans

   $ 5,917,728      $ 120,137      $ 6,195      $ 6,044,060   

Construction and land development loans

     1,073,964        21,123        11,674        1,106,761   

Commercial real estate loans

     2,428,195        688,045        27,808        3,144,048   

Residential mortgage loans

     1,704,770        2,378        187,033        1,894,181   

Consumer loans

     1,685,542        985        19,699        1,706,226   













Total loans

   $ 12,810,199      $ 832,668      $ 252,409      $ 13,895,276   













Change in loan balance from previous year

   $ 3,316,067      $ (1,639,351   $ (106,257   $ 1,570,459   















Commercial non-real estate loans

   $ 4,113,837      $ 926,997      $ 23,390      $ 5,064,224   

Construction and land development loans

     752,381        142,931        20,229        915,541   

Commercial real estate loans

     2,022,528        967,148        53,165        3,042,841   

Residential mortgage loans

     1,196,256        315,340        209,018        1,720,614   

Consumer loans

     1,409,130        119,603        52,864        1,581,597   













Total loans

   $ 9,494,132      $ 2,472,019      $ 358,666      $ 12,324,817   













Change in loan balance from previous year

   $ 2,386,911      $ (1,482,739   $ (157,157   $ 747,015   















Commercial non-real estate loans

   $ 2,713,385      $ 1,690,643      $ 29,260      $ 4,433,288   

Construction and land development loans

     665,673        295,151        28,482        989,306   

Commercial real estate loans

     1,548,402        1,279,546        95,146        2,923,094   

Residential mortgage loans

     827,985        486,444        263,515        1,577,944   

Consumer loans

     1,351,776        202,974        99,420        1,654,170   













Total loans

   $ 7,107,221      $ 3,954,758      $ 515,823      $ 11,577,802   













Change in loan balance from previous year

   $ 2,219,491      $ (1,663,095   $ (155,620   $ 400,776   















Commercial non-real estate loans

   $ 1,525,409      $ 2,236,758      $ 38,063      $ 3,800,230   

Construction and land development loans

     540,806        603,371        118,828        1,263,005   

Commercial real estate loans

     1,259,757        1,656,515        82,651        2,998,923   

Residential mortgage loans

     487,147        734,669        285,682        1,507,498   

Consumer loans

     1,074,611        386,540        146,219        1,607,370   













Total loans

   $ 4,887,730      $ 5,617,853      $ 671,443      $ 11,177,026   













Change in loan balance from previous year

   $ 739,717      $ 5,617,853      $ (137,708   $ 6,219,862   















Commercial non-real estate loans

   $ 1,046,431      $ —        $ 35,190      $ 1,081,621   

Construction and land development loans

     495,590        —          157,267        652,857   

Commercial real estate loans

     1,231,414        —          181,873        1,413,287   

Residential mortgage loans

     366,183        —          293,506        659,689   

Consumer loans

     1,008,395        —          141,315        1,149,710   













Total loans

   $ 4,148,013      $ —        $ 809,151      $ 4,957,164   













Change in loan balance from previous year

   $ (15,192   $ —        $ (141,819   $ (157,011














(a) Loans which have been acquired and no allowance brought forward in accordance with acquisition accounting. Acquired-performing loans in pools with fully accreted purchase fair value discounts are reported as originated loans, resulting in changes in classification between periods.
(b) Loans acquired in an FDIC-assisted transaction. Non-single family loss share agreement expired at 12/31/14. As of 12/31/14, $196.7 million in loans remain covered by the FDIC single family loss share agreement, providing considerable protection against credit risk.




The purpose of this discussion and analysis is to focus on significant changes and events in the financial condition and results of operations of Hancock Holding Company and our subsidiaries during 2014 and selected prior periods. This discussion and analysis is intended to highlight and supplement financial and operating data and information presented elsewhere in this report, including the consolidated financial statements and related notes.


This report contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and we intend such forward-looking statements to be covered by the safe harbor provisions therein and are including this statement for purposes of invoking these safe-harbor provisions. Forward-looking statements provide projections of results of operations or of financial condition or state other forward-looking information, such as expectations about future conditions and descriptions of plans and strategies for the future. Forward-looking statements that we may make include, but may not be limited to, comments with respect to future levels of economic activity in our markets, including the impact of volatility of oil and gas prices on our energy portfolio and associated loan loss reserves and the downstream impact on businesses that support the energy sector, especially in the Gulf Coast region, loan growth expectations, deposit trends, credit quality trends, net interest margin trends, future expense levels, success of revenue-generating initiatives, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as accretion levels, the impact of the branch rationalization process, details of the common stock buyback, possible repurchases of shares under stock buyback programs, and the financial impact of regulatory requirements. Hancock’s ability to accurately project results, predict the effects of future plans or strategies, or predict market or economic developments is inherently limited. Although Hancock believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ from those expressed in Hancock’s forward-looking statements include, but are not limited to, those risk factors outlined in Item 1A.

You are cautioned not to place undue reliance on these forward-looking statements. Hancock does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.


Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, management uses several non-GAAP financial measures including Operating Income, Core Income, and Core Net Interest Margin. These measures are provided to assist the reader with better understanding the Company’s financial condition and results of operations.

We define Operating Income as net income less tax-effected nonoperating expense items and securities gains/losses. Management believes this is a useful financial measure as it enables investors to assess ongoing operations and compare the Company’s fundamental operational performance from period to period. A reconciliation of Net Income to Operating Income is included in the financial tables in Item 6, Selected Financial Data. The components of nonoperating expense are further discussed in the Noninterest Expense section of this item.

We define Core Income as Operating Income excluding the tax-effected purchase accounting adjustments. A reconciliation of Operating Income to Core Income is included in the financial tables in Item 6, Selected Financial Data. We define Core Net Interest Margin as reported taxable equivalent (te) net interest income



excluding net purchase accounting adjustments, expressed as a percentage of average earning assets. A reconciliation of Reported Net Interest Margin to Core Net Interest Margin is included in the Net Interest Income section of this item. Management believes that Core Income and Core Net Interest Margin provide a useful measure to investors regarding the Company’s performance period over period as well as providing investors with assistance in understanding the success management has experienced in executing its strategic initiatives.


Recent Economic and Industry Developments

The Federal Reserve publishes its Summary of Commentary on Current Economic Conditions (the “Beige Book”) eight times a year. The most recent Federal Reserve Beige Book report, released January 14, 2015, indicates improvement and expansion of economic activity throughout most of Hancock’s market areas. However, activity at energy-related businesses, which are concentrated mainly in Hancock’s south Louisiana and Houston, Texas market areas, reported a slight decline in activity. This decline is expected to continue until oil prices recover. Tourism and convention activity, which is important to several of the Company’s market areas, showed expanding levels of activity in both leisure and business travel, and is expected to continue to grow in 2015 based on advanced booking reports. Retail sales for the 2014 holiday season were positive, and motor vehicle sales continued to grow. Manufacturing activity has strengthened, with an increase in employment and orders of production. Manufacturers within the Company’s footprint expect growth in production to be slower than the past several years, but still remain higher than the long-term trend.

The real estate market for residential properties was flat to slightly down compared to the prior Beige Book, released December 3, 2014. Home sales are expected to remain flat or increase slightly over the next few months. New home construction activity has remained flat. Most builders had a positive outlook, expecting new home sales to be flat or show a slight increase. Commercial construction activity has improved modestly, with demand for apartment construction showing strong growth.

Employment levels were mixed. Some areas reported slight gains in jobs, while others reported flat employment levels with some scattered layoffs. Pricing pressures remained stable in most industries. However, some skilled and professional positions are seeing above-average wage increases and higher starting pay due to competition. The Beige Book also noted that some companies were having to increase starting pay in order to retain their employees.

Loan demand across most of the markets that Hancock serves has increased slightly since the last Beige Book report, but competition for quality borrowers remains. Consumer lending and business outside the oil and gas industry increased. Commercial real estate continued to grow as a result of increased demand for multifamily housing. The outlook for increased growth remained positive but with some concern that lower oil prices may slow growth in Texas for 2015.

The overall U.S. economy continued to expand, with almost all regions showing modest to moderate growth rates. Confidence in the prospect of a higher rate of sustained growth is improving for businesses and consumers alike, although uncertainties remain about such matters as the health of the international economy and the implications of pending or proposed changes in U.S. fiscal and tax policies and regulations.

Highlights of 2014 Financial Results

Net income for the year ended December 31, 2014 was $175.7 million, compared to $163.4 million in 2013. This increase was mainly due to reducing and controlling expenses. Diluted earnings per share for 2014 were $2.10, a $0.17 increase from 2013. Operating income, which excludes tax-effected nonoperating expenses and securities gains and losses, totaled $194.1 million, a $6.2 million, or 3.3% increase over 2013. Diluted earnings per share on operating income were $2.32 for 2014, a $0.10 improvement over 2013. Core income, which the Company defines as operating income excluding tax-effected purchase accounting adjustments, increased $38.1 million, or 31%, from 2013.



Hancock’s return on average assets (ROA) for 2014 was 0.90% compared to 0.86% for 2013, while the operating ROA was 1.00% in 2014, compared to 0.99% in 2013.

The year-over-year net income increase reflects the positive impact of a number of strategic initiatives that management implemented to reduce costs and replace decreasing levels of purchase accounting adjustments with a more sustainable source of earnings. Management announced an expense and efficiency initiative in 2013 that was designed to reduce overall annual operating expense levels by $50 million as compared to annualized expenses for the first quarter of 2013 by the fourth quarter of 2014. The Company achieved the targeted reduction to expenses in 2014, as operating expenses decreased $56.6 million from 2013, and improved operating efficiency over 300 basis points to 62.03%. In addition to expense reductions, management has implemented a number of revenue initiatives that resulted in an increase in net interest income, excluding purchase accounting adjustments, of $15.6 million, or 3%, in 2014, as compared to 2013. This increase was a direct result of a $1.2 billion, or 11%, increase in average loan balances and a more favorable average earning asset mix. The company has set a longer-term sustainable efficiency ratio target of 57% - 59% for 2016, which management hopes to achieve through continued expense control and increased revenues.

Reported net interest income (te) in 2014 totaled $665.4 million, a $25.7 million, or 4%, decrease from 2013, which is the result of a $41.3 million decrease in net purchase accounting accretion. The reported net interest margin decreased 33 basis points (bps) to 3.87% in 2014. The core net interest margin, which is calculated excluding total net purchase accounting adjustments, decreased a modest 6 bps to 3.33% in 2014.

The provision for loan losses was $33.8 million in 2014 compared to $32.7 million in 2013, with the provision taken in each year primarily driven by loans not covered under FDIC loss-sharing agreements. Net charge-offs from the non-FDIC acquired portfolio during 2014 were $17.1 million, or 0.13% of average total loans. This compares to the net non-FDIC acquired charge-offs of $24.3 million, or 0.21% of average total loans, in 2013.

At December 31, 2014, the allowance for loan losses was $128.8 million, or 0.93% of period-end loans, down $4.9 million from the previous year-end. A $17.6 million increase in the allowance for the originated and acquired portfolios was offset by a $22.5 million decrease in the impaired reserve on the FDIC acquired portfolio as the FDIC acquired portfolio had significant reductions in projected losses. The determination of allowances for FDIC acquired loans and other acquired-impaired loans is discussed in Note 1 to the consolidated financial statements.

At December 31, 2014, loans in the Company’s energy segment totaled approximately $1.7 billion, or 12% of total loans. The energy segment is comprised of credits to both the E&P industry and support industries. During the fourth quarter of 2014, management reviewed all energy credits $1 million and greater and applied stress testing modeling to the various segments of the energy related portfolio. Based on current conditions, management determined that no additional reserve build was required for the energy portfolio at December 31, 2014. Should pricing pressures on oil continue, management believes the Company could experience downward pressure on risk ratings for individual credits that could lead to additional provision expense in future quarters. However, this will depend upon a number of factors including the severity and duration of the cycle. Based on its review and assessment of information currently available, management believes that although downgrades may occur, they do not foresee significant additional losses at this stage.

Nonperforming assets including nonaccrual loans, restructured loans, other real estate and foreclosed assets totaled $148.1 million at December 31, 2014, a decrease of $37.9 million, or 20%, from December 31, 2013. The Company’s nonperforming asset ratio representing nonperforming assets as a percentage of total loans, other real estate and foreclosed properties decreased 44 basis points to 1.06% between December 31, 2013 and December 31, 2014.

Total assets at December 31, 2014 were $20.7 billion, up about 9% from the prior year-end. Total loans increased $1.6 billion, or 13% during 2014, and were up $1.7 billion, or 14%, excluding the FDIC acquired portfolio. During 2014, net growth was experienced in all loan categories across the Company’s entire footprint.



At December 31, 2014, total deposits were $16.6 billion, up about 8% from the end of 2013, as all deposit categories showed an increase. Noninterest-bearing demand deposits increased almost 8% and comprised 36% of total deposits at December 31, 2014.

The Company’s tangible common equity ratio was 8.59% at December 31, 2014, down 41 bps from the previous year-end due to asset growth and share repurchases further discussed in the Capital Resources section of this item.


Net Interest Income

Net interest income (te) is the primary component of our earnings and represents the difference, or spread, between revenue generated from interest-earning assets and the interest expense related to funding those assets. For analytical purposes, net interest income is adjusted to a taxable equivalent basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

Net interest income (te) for 2014 totaled $665 million, a $26 million, or 4%, decrease from 2013 as interest and fees on loans declined $28 million, mainly due to a $41.4 million decrease in net purchase accounting accretion. Excluding purchase accounting accretion, net interest income (te) increased by $15.6 million due to a $752 million increase in average earning assets, an improved earning asset mix, and a 3 bps decrease in the cost of funding earning assets. Management has implemented a number of strategic initiatives to increase sustainable interest income to replace the decreasing amount of interest income from purchase accounting accretion. These initiatives include, among other items, hiring experienced middle market commercial lenders in growing markets such as Houston, expanding the Company’s product base in specialty and lease financing and opening business banking centers specifically designed for commercial customers. These initiatives contributed to a $1.2 billion increase in average loans between 2013 and 2014.

The reported net interest margin declined 33 bps to 3.87% in 2014. The net interest margin is the ratio of net interest income (te) to average earnings assets. The core margin was approximately 3.33% in 2014, down 6 bps from 2013. The declining trend of the core margin moderated in 2014 after experiencing more significant decreases in prior years.

The overall reported yield on earning assets was 4.09% in 2014, down 36 bps from 2013. The reported loan portfolio yield was 4.71% in 2014 compared to 5.45% in 2013. Excluding the impact from purchase accounting accretion, the loan yield decreased 26 bps. The reported tax equivalent yield on the investment securities portfolio increased 17 bps from 2013, reflecting higher yields in CMOs and mortgage-backed securities from a decrease in premium amortization as prepayments decreased. The mix of average earning assets improved in 2014, as the proportion of loans increased to 75% of earnings assets compared to 71% in 2013 with corresponding declines in both investment securities and short-term investments. The decline in these portfolios resulted from a management decision to fund a portion of the Company’s loan growth from repayments and maturities of investment securities.

The cost of funding earning assets declined to 0.22% in 2014, down 3 bps from 2013. The overall rate paid on interest-bearing deposits declined 1 bp from 2013 to 0.24% in 2014 as the Company was able to replace approximately $211.6 million of higher cost time deposits and public fund deposits with lower cost interest-bearing transaction and saving deposits. Borrowing costs decreased 37 bps from 1.45% in 2013 to 1.08% in 2014. This decrease was mainly attributable to a June 2014 early redemption of $115 million in fixed rate repurchase obligations bearing an average rate of 3.43%. The early redemption reduced borrowing costs by approximately $1.8 million during the second half of 2014. Interest-free funding sources, including noninterest-bearing demand deposits, funded almost 35% of average earnings assets in 2014 and 34% in 2013.

Net interest income (te) for 2013 was down $31.4 million, or 4%, from 2012 as interest and fees on loans declined $37.6 million. The reported net interest margin declined 28 bps to 4.20% in 2013. The core margin was 3.39% in 2013, down 35 bps from 2012. The core margin was relatively stable during 2013 after decreasing throughout 2012, mainly from a decline in the core yields on the loan and securities portfolios.



The overall reported yield on earning assets in 2013 was down 35 bps from 2012 as the reported loan portfolio yield declined 56 bps. Loan growth in commercial loans during 2013 was in very competitively priced segments. The reported yield on the mainly fixed-rate portfolio of investment securities declined 12 bps from 2012, reflecting lower yields available on the reinvestment of maturities and repayments. The mix of average earning assets improved moderately in 2013, as the proportion of loans increased to 71.2% of earnings assets compared to 69.7% in 2012 with a corresponding decline in short-term investments.

The cost of funding earning assets declined to 0.25% in 2013, down 7 bps from 2012. The overall rate paid on interest-bearing deposits declined 8 bps from 2012 to 0.25% in 2013. This decrease was due primarily to the impact of the sustained low rate environment on deposit rates in general and on the re-pricing of time deposits in particular. The mix of funding sources improved during 2013, as higher-cost time deposits continued to decrease as a percentage of total deposits, and interest-bearing transaction and savings deposits increased. Interest-free sources, including noninterest-bearing demand deposits, funded almost 34% of average earnings assets in 2013 compared to 32% in 2012.

The factors contributing to the changes in net interest income (te) for 2014, 2013, and 2012 are presented in Tables 1 and 2. Table 1 shows average balances and related interest and rates and provides a reconciliation of reported and core NIM. Table 2 details the effects of changes in balances (volume) and rates on net interest income in 2014 and 2013.



TABLE 1. Summary of Average Balances, Interest and Rates (te)(a)


    Years Ended December 31,  
    2014     2013     2012  
($ in millions)   Average
    Interest     Rate     Average
    Interest     Rate     Average
    Interest     Rate  



Interest-Earnings Assets:


Loans (te) (b)

  $ 12,938.9      $ 610.0        4.71   $ 11,700.2      $ 637.8        5.45   $ 11,238.7      $ 675.4        6.01

Loans held for sale

    16.5        0.7        4.28        25.0        0.9        3.53        46.0        1.4        3.41   

Investment securities:


U.S. Treasury and government agency securities

    145.2        2.3        1.62        28.1        0.6        2.16        99.1        2.1        2.12   

CMOs and mortgage-backed securities

    3,450.9        79.6        2.31        3,870.2        81.3        2.10        3,696.4        81.1        2.19   

Obligations of states and political subdivisions:



    101.6        3.6        3.52        87.1        3.3        3.73        59.8        2.8        4.73   

nontaxable (te)

    104.8        5.9        5.66        146.2        7.1        4.85        200.7        9.0        4.48   

Other securities

    14.2        0.3        2.22        8.5        0.2        2.44        7.9        0.4        4.43   




























Total investment in securities (te) (c)

    3,816.7        91.7        2.40        4,140.1        92.5        2.23        4,063.9        95.4        2.35   

Federal funds sold and short-term investments

    423.4        1.0        0.23        578.6        1.4        0.24        771.5        1.9        0.25   




























Total earning assets (te)

    17,195.5        703.4        4.09     16,443.9        732.6        4.45     16,120.1        774.1        4.80




























Non-earning assets:


Other assets

    2,370.9            2,623.0            2,951.6       

Allowance for loan losses

    (129.6         (137.9         (136.3    










Total assets

  $ 19,436.8          $ 18,929.0          $ 18,935.4       










Liabilities and Stockholders’ Equity


Interest-bearing Liabilities:


Interest-bearing transaction and savings deposits

  $ 6,173.7      $ 6.7        0.11   $ 5,962.1      $ 6.0        0.10   $ 5,827.3      $ 7.4        0.13

Time deposits

    2,053.5        12.8        0.62        2,350.5        14.9        0.63        2,580.0        21.2        0.82   

Public funds

    1,531.0        3.7        0.24        1,410.7        3.3        0.23        1,451.5        4.1        0.29   




























Total interest-bearing deposits

    9,758.2        23.2        0.24        9,723.3        24.2        0.25        9,858.8        32.7        0.33   




























Repurchase agreements

    688.7        1.9        0.27        763.3        4.4        0.58        760.9        5.9        0.78   

Other interest-bearing liabilities

    317.0        0.5        0.15        42.7        0.1        0.21        82.9        0.1        0.14   

Long-term debt

    379.7        12.5        3.30        389.2        12.8        3.28        338.9        12.9        3.80   




























Total interest-bearing liabilities

    11,143.6        38.1        0.34     10,918.5        41.5        0.38     11,041.5        51.6        0.47






























Demand deposits

    5,641.8            5,393.9            5,251.4       

Other liabilities

    176.5            230.0            241.7       

Stockholders’ equity

    2,474.9            2,386.6            2,400.8       










Total liabilities & stockholders’ equity

  $ 19,436.8          $ 18,929.0          $ 18,935.4       










Net interest income and margin (te)

    $ 665.3        3.87     $ 691.1        4.20     $ 722.5        4.48






















Net earning assets and spread

  $ 6,051.9          3.75   $ 5,525.4          4.07   $ 5,078.6          4.33



















Interest cost of funding earning assets

        0.22         0.25         0.32











(a) Tax equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Includes nonaccrual loans
(c) Average securities do not include unrealized holding gains or losses on available for sale securities.



Reconciliation of Reported Net Interest Margin to Core Margin



Years Ended December 31,

($ in millions)    2014     2013     2012  

Net interest income (te)

   $ 665.3      $ 691.1      $ 722.5   

Purchase accounting adjustments


Loan discount accretion

     97.7        144.7        141.2   

Bond premium amortization

     (5.4     (11.5     (24.5

CD premium accretion

     0.2        0.7        2.7   










Total net purchase accounting adjustments

     92.5        133.9        119.4   










Net interest income (te)—core

   $ 572.8      $ 557.2      $ 603.1   










Average earning assets

   $ 17,195.5      $ 16,443.9      $ 16,120.1   

Net interest margin—reported

     3.87     4.20     4.48

Net purchase accounting adjustments

     0.54     0.81     0.74










Net interest margin—core

     3.33     3.39     3.74










TABLE 2. Summary of Changes in Net Interest Income (te)(a) (b)


     2014 Compared to 2013     2013 Compared to 2012  
     Due to
Change in

    Due to
Change in

(in thousands)    Volume     Rate       Volume     Rate    

Interest Income (te)


Loans (te) (c)

   $ 63,516      $ (91,296   $ (27,780   $ 26,948      $ (64,575   $ (37,627

Loans held for sale

     (337     163        (174     (710     219        (491

Investment securities:


U.S. Treasury and government agency securities

     1,931        (189     1,742        (1,534     36        (1,498

CMOs and mortgage-backed securities

     (9,264     7,476        (1,788     3,730        (3,495     235   

Obligations of states and political subdivisions:



     515        (196     319        1,106        (682     424   

Nontaxable (te)

     (2,215     1,065        (1,150     (2,595     699        (1,896

Other securities

     127        (20     107        28        (167     (139



















Total investment in securities (te)

     (8,906     8,136        (770     735        (3,609     (2,874

Federal funds sold and short-term investments

     (356     (82     (438     (468     (53     (521



















Total interest income (te)

     53,917        (83,079     (29,162     26,505        (68,018     (41,513



















Interest-bearing transaction and savings deposits

     218        514        732        166        (1,520     (1,354

Time deposits

     (1,855     (235     (2,090     (1,768     (4,579     (6,347

Public funds

     287        119        406        (114     (751     (865



















Total interest-bearing deposits

     (1,350     398        (952     (1,716     (6,850     (8,566



















Repurchase agreements

     (399     (2,171     (2,570     18        (1,503     (1,485

Other interest-bearing liabilities

     419        (30     389        (70     41        (29

Long-term debt

     (312     85        (227     1,775        (1,898     (123



















Total interest expense

     (1,642     (1,718     (3,360     7        (10,210     (10,203



















Net interest income (te) variance

   $ 55,559      $ (81,361   $ (25,802   $ 26,498      $ (57,808   $ (31,310




















(a) Tax equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Amounts shown as due to changes in either volume or rate includes an allocation of the amount that reflects the interaction of volume and rate changes. This allocation is based on the absolute dollar amounts of change due solely to changes in volume or rate.
(c) Includes nonaccrual loans.



Provision for Loan Losses

The provision for loan losses was $33.8 million in 2014 compared to a provision of $32.7 million in 2013. The provision for non-FDIC acquired loans in 2014 was $34.8 million, compared to $25.3 million in 2013. The provision for the FDIC acquired portfolio was a net credit of almost $1 million, compared to a provision of $7.5 million in 2013. The decrease in the FDIC acquired portfolio provision was primarily due to reductions in expected losses.

The section on the “Allowance for Loan and Lease Losses” provides additional information on changes in the allowance for loans losses and general credit quality. Certain differences in the determination of the allowance for loan losses for originated loans and for acquired performing loans and acquired impaired loans (which includes all covered loans) are described in Note 1 to the consolidated financial statements.

Noninterest Income

Noninterest income for 2014 totaled $228 million, an $18.1 million, or 7%, decrease from 2013. Decreases related to increased amortization of the FDIC loss share receivable, reduced fees resulting from the sale of certain insurance business lines in the second quarter, and a decrease in income from secondary mortgage operations were the primary factors in the decline in noninterest income.

Table 3 presents the components of noninterest income for the prior three years along with the percentage changes between years:

TABLE 3. Noninterest Income


($ in thousands)    2014     % Change     2013     % Change     2012  

Service charges on deposit accounts

   $ 77,006        (3 )%    $ 79,000        1   $ 78,246   

Trust fees

     44,826        17        38,186        17        32,736   

Bank card and ATM fees

     45,031        (2     45,939        (6     49,112   

Investment and annuity fees

     20,291        4        19,574        9        18,033   

Secondary mortgage market operations

     8,036        (36     12,543        (24     16,488   

Insurance commissions and fees

     9,473        (40     15,804        1        15,692   

(Amortization) accretion of loss share receivable

     (12,102     (441     (2,239     (145     5,000   

Income from bank-owned life insurance

     10,314        (8     11,223        1        11,163   

Credit-related fees

     11,121        27        8,724        31        6,681   

Income from derivatives

     1,645        (65     4,675        30        3,600   

Gain on sales of assets

     1,279        (34     1,932        (56     4,366   

Safety deposit box income

     1,830        (5     1,923        (4     2,006   

Other miscellaneous income

     9,249        6        8,754        (4     9,072   

Securities transactions gains, net

     —          (100     105        (93     1,552   
















Total noninterest income

   $ 227,999        (7 )%    $ 246,143        (3 )%    $ 253,747   
















Amortization on the FDIC loss share receivable increased $9.9 million in 2014 from the prior year. The current year’s $12.1 million amortization of the FDIC loss share receivable reflects a reduction in the amount of expected reimbursements under the loss sharing agreements due to lower loss projections for the related FDIC acquired loan pools. Accounting for amortization of the loss share receivable is described in Note 1 to the consolidated financial statements. Management expects a lower level of amortization in future periods as the FDIC loss share coverage on the non-single family portfolio expired in December 2014. The loss share agreement covering the single family portfolio expires in December 2019.

Fees from secondary mortgage operations totaled $8.0 million in 2014, down $4.5 million, or 36%, from a year-earlier. Secondary mortgage operations fee income is generated from selling certain types of originated single



family mortgage loans into the secondary market, in order to provide mortgage products for our customers while managing interest rate risk and liquidity. These loans are originated by the Company through its branch network. The Company typically sells its longer-term fixed-rate loans while retaining in the portfolio the majority of its adjustable rate loans as well as loans generated through certain programs to support customer relationships including programs for high net worth individuals and non-builder construction loans. During 2014, single family loan originations decreased 24% as refinancing activity was down almost 57% from 2013, consistent with national trends. The decline in fee income in 2014 reflects a 36% reduction in loans sold into the secondary market from the lower level of originations.

Trust and investment and annuity fees totaled $65.1 million in 2014, a 7.4 million, or 13%, increase over 2013. Trust revenue was positively impacted by strong sales of our Hancock Horizon mutual funds via national distribution channels and increased new business from our Personal Trust, Institutional Trust and Retirement Services lines of businesses. Revenues from these lines increased $6.8 million, or 20%, from 2013.

Bank card and ATM fees totaled $45.0 million in 2014, down less than 2% compared to 2013. Included in bank card and ATM fees are fees from credit card, debit card and ATM transactions, and merchant service fees. Commercial card fees were up $2.4 million, or 41% as a result of various strategic initiatives during 2014 to increase card usage, including specific commercial card enhancements. This increase is offset by a decrease in ATM fee income due in part to the closing of approximately 50 branches in 2013 and 2014 as part of the Company’s branch rationalization program.

During the second quarter of 2014, the Company sold its property and casualty and group benefits insurance intermediary business. The business lines sold contributed approximately 50% of the Company 2013 insurance commissions and fees. As a result of the sale, insurance commissions and fees were down $6.3 million, or 40% compared to 2013.

Service charges on deposit accounts were down $2.0 million, or 3% from 2013, primarily due to a decrease in overdraft charges. The Company implemented a number of initiatives in 2014 to grow deposit balances and the related service charges as part of its general strategy of growing revenue. Management believes these initiatives will result in an increased level of service charges over time.

Credit-related fee income increased $2.4 million, or 27% in 2014 as compared to 2013. These fees primarily consist of standby letter of credit unused loan commitment fees. This growth in fee income is a result of the increase in lending activity during 2014.

Noninterest income for 2013 compared to 2012, was down $7.6 million, or 3%, as the favorable impact of increases in trust, and investment and annuity income, was offset by declines in bankcard and ATM fees, income from secondary mortgage operations and accretion of the FDIC loss share receivable.

Trust and investment and annuity fees totaled $57.8 million in 2013, up $7.0 million, or 14%, from 2012 due to improved stock market values and new business.

Bank card and ATM fees totaled $45.9 million in 2013, a $3.2 million, or 6% decrease from 2012, reflecting the full impact of restrictions on debit card interchange rates arising from the implementation of the Durbin amendment to the Dodd-Frank Act. This decline was partially offset by an increase in merchant processing revenue starting in the third quarter of 2012 that was related to the reacquisition of the Company’s merchant business and a change in the terms of the servicing agreement.

Fees from secondary mortgage operations totaled $12.5 million in 2013, down $3.9 million, or 24%, from a year earlier, reflecting a slowdown in mortgage loan activity in the last half of 2013, mainly due to the impact of higher longer-term interest rates. The decline also reflects a lower level of loans sold as a result of a strategic decision to retain more residential mortgages on the balance sheet.

Amortization of the FDIC loss share receivable increased $7.2 million from 2012 to 2013. Amortization, or negative accretion, of $2.2 million in 2013 reflects a reduction in the expected amount of reimbursements under the loss sharing agreements due to lower loss projections for the related FDIC acquired loan pools.



Noninterest Expense

Noninterest expense for 2014 totaled $606.7 million, down $71.6 million, or 11%, compared to 2013. Excluding nonoperating expenses noninterest expense decreased $59.3 million, or 9%, to $581.0 million in 2014 compared to 2013. The decrease in expenses is a result of the Company’s general expense reduction strategic initiative implemented in early 2013. The focus of the strategic expense initiative was to reduce quarterly operating expense by $12.5 million ($50 million annualized) between the first quarter of 2013 and the fourth quarter of 2014. The Company achieved its expense reduction target in the second quarter of 2014. The strategic initiatives included, among other items, a branch rationalization program that resulted in closing or selling over 50 branches since January 1, 2013, a bank charter consolidation, selling certain insurance business lines, increasing automation through enhancing systems, and restructuring various support units within the organization to enhance operating efficiency. Although management will continue to look for potential expense reduction opportunities, it believes that expenses may marginally increase in the short-term as the Company implements a number of revenue enhancing strategic initiatives.

Nonoperating expenses, primarily related to the expense and efficiency initiatives noted above and merger-related activities, totaled $25.7 million in 2014 and $38.0 million in 2013.

Table 4 presents the components of noninterest expense for the prior three years, along with the percentage changes between years. The first schedule of Table 4 presents operating expenses by component and the second schedule identifies nonoperating expenses by component.

Total personnel expense totaled $320.5 million in 2014, a $26.8 million, or 8%, decrease from 2013. The $13.2 million, or 5%, decrease in employee compensation was related to the expense and efficiency initiative as the number of full-time equivalent employees at December 31, 2014 was down by almost 200 to 3,794. In addition to the reduction in salary costs, employee benefits expense was down $13.6 million, or 21%, primarily from actuarial gains in 2013 related to higher long-term interest rates at year-end 2013 and strong plan asset performance. Also contributing to the reduction in benefit costs was the decrease in the number of full-time equivalent employees.

Occupancy and equipment expenses decreased a combined $8.4 million, or 12% from 2013, primarily due to the branch closures noted above.

Data processing expense was up $2.9 million, or 6%, primarily related to increased debit and credit card activity. Professional services expense decreased $8.4 million, or 25%, from 2013 primarily from a $2.5 million reduction in legal and other professional fees related to special credits and a $1 million reduction in outside accounting and auditing expense as the Company has begun to transition its internal audit function in-house. Deposit insurance and regulatory fees decreased $3.0 million or 20% from 2013 due, in part, to the charter consolidation.

Other real estate expense decreased $5.3 million, or 66%, from 2013 as the Company has experienced a much lower level of valuation adjustments and losses on disposal of properties as real estate prices stabilized.

Nonoperating expenses decreased $12.3 million, or 32%, from 2013. These expenses are incurred in connection with the Company’s ongoing expense and efficiency initiative. They include such items, among others, as lease buy-outs, branch and equipment disposition costs and severance packages from the branch rationalization project, settlement of an FDIC assessment related to loss claim reimbursement amounts, early termination fees on repurchase obligations, and severance costs associated with organizational restructuring. The decrease from 2013 to 2014 represents a reduction in these types of expenses as a majority of the initiatives related to the branch rationalization project were completed during 2013 and early 2014, including the cost associated with the closing or selling of approximately 38 branches in 2013, as compared to 15 in 2014.



TABLE 4. Noninterest Expense


($ in thousands)    2014      % Change     2013      % Change     2012  

Employee compensation

   $ 269,249         (5 )%    $ 282,420         (1 )%    $ 284,962   

Employee benefits

     51,253         (21     64,847         (10     71,772   
















Total personnel expense

     320,502         (8     347,267         (3     356,734   

Net occupancy expense

     43,476         (11     48,847         (9     53,856   

Equipment expense

     16,862         (15     19,885         (9     21,862   

Data processing expense

     51,279         6        48,364         3        46,819   

Professional services expense

     25,755         (25     34,114         3        33,021   

Amortization of intangibles

     26,797         (9     29,470         (8     32,067   

Telecommunications and postage

     14,640         (16     17,432         (17     21,062   

Deposit insurance and regulatory fees

     11,872         (20     14,914         0        14,902   

Other real estate expense, net

     2,758         (66     8,036         (34     12,250   


     8,702         (15     10,281         26        8,155   

Ad valorem and franchise taxes

     10,492         8        9,727         17        8,321   

Printing and supplies

     4,310         (16     5,112         (22     6,534   

Insurance expense

     3,919         (4     4,094         (25     5,494   


     4,057         (13     4,663         (6     4,987   

Entertainment and contributions

     5,762         9        5,265         (3     5,426   

Tax credit investment amortization

     8,817         22        7,219         21        5,974   

Other expense

     20,980         (18     25,581         5        24,478   
















Total noninterest expense (excluding nonoperating expense)

     580,980         (9     640,271         (3     661,942   

Nonoperating expense

     25,686         (32     38,003         (26     51,125   
















Total noninterest expense

   $ 606,666         (11 )%    $ 678,274         (5 )%    $ 713,067   
















The components of nonoperating expense:


(in thousands)    2014      2013      2012  


   $ 7,794       $ 9,215       $ 9,450   

Net occupancy expense

     120         7         611   

Equipment expense

     91         141         2,235   

Data processing expense

     90         3         3,116   

Professional services expense

     7,466         5,243         24,436   

Telecommunications and postage

     36         —           375   


     235         118         5,360   

Printing and supplies

     240         —           957   


     9         53         771   

Entertainment and contributions

     —           —           623   

Tax credit investment amortization

     —           3,562         —     

Other expense

     9,605         19,661         3,191   










Total nonoperating expense

   $ 25,686       $ 38,003       $ 51,125   










Other expense includes branch closure write-downs and disposition expense in 2014 and 2013, and $3.5 million in early termination fees on repurchase obligations in 2014.

Noninterest expense for 2013 decreased $34.8 million, or 5%, compared to 2012. Excluding nonoperating expenses related primarily to the expense and efficiency initiative and merger-related activities, which totaled $38.0 million in 2013 and $51.1 million in 2012, noninterest expense decreased $21.7 million, or 3%, to $640.3



million in 2013 compared to 2012. The overall decrease is primarily related to cost savings realized from the successful integration of Whitney’s operations, including the impact of the core systems conversion and consolidations of the branch networks and back-office operations. Cost savings resulting from the Company’s expense and efficiency initiative began having a favorable effect in the last half of 2013 and continued into 2014.

Total personnel expense decreased $9.5 million, or 3%, in 2013 compared to the prior year. Full-time equivalent employees were 3,978 at December 31, 2013, compared to 4,235 at December 31, 2012.

Occupancy and equipment expense decreased by a combined $7.0 million in 2013 due to the decreases associated with the conversion and consolidations. Other expense categories that experienced declines from 2012 related to the conversion and consolidations included telecommunications and postage, printing and supplies and insurance expense.

ORE expense totaled $8.0 million in 2013, a $4.2 million, or 34%, decline from 2012 as the prior year included valuation losses on ORE acquired from Whitney and unreimbursed losses on covered loans moving through the foreclosure process.

Income Taxes

The Company provided for income tax expense at an effective rate of 27% in 2014, 24% in 2013 and 23% in 2012. Management expects the effective tax rate for 2015 to be in the range of 27% to 29%. Hancock’s effective tax rates have varied from the 35% federal statutory rate primarily because of tax-exempt income and its participation in programs that award tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the bank-owned life insurance program are the major components of tax-exempt income. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets the Company serves and are directed at tax credits issued under the Qualified Zone Academy Bonds (QZAB), Qualified School Construction Bonds (QSCB), as well as Federal and State New Market Tax Credit (NMTC) and Low-Income Housing Tax Credit (LIHTC) programs. The investments generate tax credits which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. Table 5 reconciles reported income tax expense to that computed at the statutory federal tax rate for each year in the three-year period ended December 31, 2014.

TABLE 5. Income Taxes


     Years Ended December 31,  
(In thousands)    2014     2013     2012  

Taxes computed at statutory rate

   $ 84,766      $ 75,553      $ 69,074   

Tax credits:



     (3,171     (3,176     (3,368

NMTC—Federal and State

     (12,954     (10,594     (7,742


     (452     (925     (1,677

Other tax credits

     —          (1,048     (874










Total tax credits

     (16,577     (15,743     (13,661

State income taxes, net of federal income tax benefit

     4,649        2,352        (78

Tax-exempt interest

     (6,301     (6,487     (7,127

Bank owned life insurance

     (3,554     (3,926     (4,005

Goodwill reduction related to asset sale

     1,112        —          —     

Other, net

     2,370        761        1,410   










Income tax expense

   $ 66,465      $ 52,510      $ 45,613   












The Company invests in Federal NMTC projects related to tax credit allocations that have been awarded to its wholly-owned Community Development Entity (CDE) as well as projects that utilize credits awarded to unrelated CDEs. From 2008 through 2014, the Company’s CDE was awarded three allocations totaling $148 million. These awards are expected to generate tax credits totaling $57.7 million over their seven-year compliance periods.

The Company intends to continue making investments in tax credit projects, though its ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits. Based only on tax credit investments that have been made to date, the Company expects to realize tax credits over the next three years totaling $12.9 million, $10.1 million and $9.0 million for 2015, 2016 and 2017, respectively.


On March 31, 2014, the Company combined its two state bank charters into one charter. Due to the charter change and consistent with its stated strategy that is focused on providing a consistent package of community banking products and services throughout a contiguous market area, the Company has identified its overall banking operations as its only reportable segment. Please see Note 18 for further information.


Investment Securities

Our investment in securities was $3.8 billion at December 31, 2014, compared to $4.0 billion at December 31, 2013. The investment security portfolio is managed by ALCO to assist in the management of interest rate risk and liquidity while providing an acceptable rate of return to the Company.

Our securities portfolio consists mainly of residential mortgage-backed securities and CMOs that are issued or guaranteed by U.S. government agencies. We invest only in high quality securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two and five. At December 31, 2014, the average maturity of the portfolio was 4.38 years with an effective duration of 3.51 and a weighted-average yield of 2.29%. At December 31, 2013, the average maturity of the portfolio was 3.97 years with an effective duration of 3.93 and a weighted-average yield of 2.28%.

There were no investments in securities of a single issuer, other than U.S. Treasury and U.S. government agency securities and mortgage-backed securities issued or guaranteed by U.S. government agencies that exceeded 10% of stockholders’ equity. We do not invest in subprime or “Alt A” home mortgage loans. Investments classified as available for sale are carried at fair value with held to maturity securities carried at amortized cost. Unrealized holding gains on available for sale securities are excluded from net income and are recognized, net of tax, in other comprehensive income and in accumulated other comprehensive income, a separate component of stockholders’ equity, until realized.

At December 31, 2014, securities available for sale totaled $1.6 billion and securities held to maturity totaled $2.2 billion compared to $1.4 billion and $2.6 billion, respectively, at December 31, 2013. During the third quarter of 2013, approximately $1.0 billion of securities available for sale were reclassified as securities held to maturity. See Note 2 to the consolidated financial statements for further discussion of this reclassification.



The amortized cost of securities at December 31, 2014 and 2013 was as follows:

TABLE 6. Securities by Type


     December 31,  
(in thousands)    2014      2013  

Available for sale securities


U.S. Treasury and government agency securities

   $ 300,207       $ 504   

Municipal obligations

     13,995         35,809   

Mortgage-backed se