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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

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, P.O. Box 4019, Gulfport, Mississippi   39502
(Address of principal executive offices)   (Zip Code)

(228) 868-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, address and fiscal year, if changed since last report)

 

 

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” 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 Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

36,889,297 common shares were outstanding as of October 31, 2010 for financial statement purposes.

 

 

 


Table of Contents

 

Hancock Holding Company

Index

 

          Page Number  

Part I. Financial Information

  

ITEM 1.

  

Financial Statements

Condensed Consolidated Balance Sheets — September 30, 2010 (unaudited) and December 31, 2009

     1   
  

Condensed Consolidated Statements of Income (unaudited) — Three and nine months ended September 30, 2010 and 2009

     2   
  

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) — Nine months ended September 30, 2010 and 2009

     3   
  

Condensed Consolidated Statements of Cash Flows (unaudited) — Nine months ended September 30, 2010 and 2009

     4   
  

Notes to Condensed Consolidated Financial Statements (unaudited) — September 30, 2010

     5-19   

ITEM 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     20-34   

ITEM 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     35   

ITEM 4.

  

Controls and Procedures

     35   

Part II.

  

Other Information

  

ITEM 1A.

  

Risk Factors

     36   

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     36   

ITEM 4.

  

Reserved

     36   

ITEM 5.

  

Other Information

     36   

ITEM 6.

  

Exhibits

     37   

Signatures

     38   


Table of Contents

 

Part I. Financial Information

 

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share data)

 

     September 30,
2010
(unaudited)
    December 31,
2009
 
ASSETS     

Cash and due from banks (non-interest bearing)

   $ 175,633      $ 204,714   

Interest-bearing deposits with other banks

     430,401        582,081   

Federal funds sold

     112        410   

Other short-term investments

     144,993        214,771   

Securities available for sale, at fair value (amortized cost of $1,553,150 and $1,566,403)

     1,619,869        1,611,327   

Loans held for sale

     54,201        36,112   

Loans

     4,919,071        5,127,339   

Less: allowance for loan losses

     (79,725     (66,050

          unearned income

     (11,374     (13,164
                

Loans, net

     4,827,972        5,048,125   

Property and equipment, net of accumulated depreciation of $123,066 and $113,967

     211,287        203,133   

Other real estate, net

     31,206        13,786   

Accrued interest receivable

     29,849        35,468   

Goodwill

     61,631        62,277   

Other intangible assets, net

     14,108        16,546   

Life insurance contracts

     156,935        151,355   

FDIC loss share receivable

     327,037        325,606   

Other assets

     154,128        191,372   
                

Total assets

   $ 8,239,362      $ 8,697,083   
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Deposits:

    

Non-interest bearing demand

   $ 1,092,452      $ 1,073,341   

Interest-bearing savings, NOW, money market and time

     5,616,346        6,122,471   
                

Total deposits

     6,708,798        7,195,812   

Federal funds purchased

     3,200        250   

Securities sold under agreements to repurchase

     513,239        484,457   

FHLB borrowings

     10,229        30,805   

Long-term notes

     423        671   

Deferred tax liability, net

     5,003        7,116   

Other liabilities

     132,690        140,309   
                

Total liabilities

     7,373,582        7,859,420   

Stockholders’ Equity

    

Common stock - $3.33 par value per share; 350,000,000 shares authorized, 36,883,434 and 36,840,453 issued and outstanding, respectively

     122,822        122,679   

Capital surplus

     262,181        257,643   

Retained earnings

     462,760        454,343   

Accumulated other comprehensive gain, net

     18,017        2,998   
                

Total stockholders’ equity

     865,780        837,663   
                

Total liabilities and stockholders’ equity

   $ 8,239,362      $ 8,697,083   
                

See notes to unaudited condensed consolidated financial statements.

 

1


Table of Contents

 

Hancock Holding Company and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010      2009      2010      2009  

Interest income:

           

Loans, including fees

   $ 69,169       $ 61,146       $ 214,822       $ 180,471   

Securities - taxable

     14,545         16,643         47,317         53,669   

Securities - tax exempt

     1,302         1,099         3,957         3,232   

Federal funds sold

     —           —           28         5   

Other investments

     382         870         1,393         3,934   
                                   

Total interest income

     85,398         79,758         267,517         241,311   
                                   

Interest expense:

           

Deposits

     16,147         19,205         58,831         65,262   

Federal funds purchased and securities sold under agreements to repurchase

     2,406         2,731         7,293         8,064   

Long-term notes and other interest expense

     23         68         120         94   
                                   

Total interest expense

     18,576         22,004         66,244         73,420   
                                   

Net interest income

     66,822         57,754         201,273         167,891   

Provision for loan losses, net

     16,258         13,495         54,601         38,756   
                                   

Net interest income after provision for loan losses

     50,564         44,259         146,672         129,135   
                                   

Noninterest income:

           

Service charges on deposit accounts

     11,332         11,795         35,148         33,540   

Other service charges, commissions and fees

     16,869         14,248         49,012         42,619   

Securities gains, net

     —           61         —           61   

Other income

     7,007         4,304         17,722         17,748   
                                   

Total noninterest income

     35,208         30,408         101,882         93,968   
                                   

Noninterest expense:

           

Salaries and employee benefits

     35,890         29,113         106,036         88,590   

Net occupancy expense

     5,657         5,144         17,827         15,215   

Equipment rentals, depreciation and maintenance

     2,496         2,397         7,863         7,514   

Amortization of intangibles

     656         354         2,078         1,064   

Other expense

     23,361         18,741         74,198         57,430   
                                   

Total noninterest expense

     68,060         55,749         208,002         169,813   
                                   

Net income before income taxes

     17,712         18,918         40,552         53,290   

Income tax expense

     2,859         3,700         5,365         10,295   
                                   

Net income

   $ 14,853       $ 15,218       $ 35,187       $ 42,995   
                                   

Basic earnings per share

   $ 0.40       $ 0.48       $ 0.95       $ 1.35   
                                   

Diluted earnings per share

   $ 0.40       $ 0.47       $ 0.94       $ 1.34   
                                   

Dividends paid per share

   $ 0.24       $ 0.24       $ 0.72       $ 0.72   
                                   

Weighted avg. shares outstanding-basic

     36,880         31,857         36,864         31,828   
                                   

Weighted avg. shares outstanding-diluted

     36,994         32,058         37,052         32,003   
                                   

See notes to unaudited condensed consolidated financial statements.

 

2


Table of Contents

 

Hancock Holding Company and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share data)

 

     Common Stock      Capital
Surplus
     Retained
Earnings
    Accumulated
Other
Comprehensive

Loss, net
    Total  
     Shares      Amount            

Balance, January 1, 2009

     31,769,679       $ 105,793       $ 101,210       $ 411,579      $ (9,083   $ 609,499   

Comprehensive income

               

Net income per consolidated statements of income

     —           —           —           42,995        —          42,995   

Net change in unfunded accumulated benefit obligation, net of tax

     —           —           —           —          1,360        1,360   

Net change in fair value of securities available for sale, net of tax

     —           —           —           —          19,314        19,314   
                     

Comprehensive income

                  63,669   

Cash dividends declared ($0.72 per common share)

     —           —           —           (23,099     —          (23,099

Common stock issued, long-term incentive plan, including income tax benefit of $390

     106,896         356         1,968         —          —          2,324   

Compensation expense, long-term incentive plan

     —           —           2,359         —          —          2,359   
                                                   

Balance, September 30, 2009

     31,876,575       $ 106,149       $ 105,537       $ 431,475      $ 11,591      $ 654,752   
                                                   

Balance, January 1, 2010

     36,840,453       $ 122,679       $ 257,643       $ 454,343      $ 2,998      $ 837,663   

Comprehensive income

               

Net income per consolidated statements of income

     —           —           —           35,187        —          35,187   

Net change in unfunded accumulated benefit obligation, net of tax

     —           —           —           —          1,190        1,190   

Net change in fair value of securities available for sale, net of tax

     —           —           —           —          13,829        13,829   
                     

Comprehensive income

                  50,206   

Cash dividends declared ($0.72 per common share)

     —           —           —           (26,770     —          (26,770

Common stock issued, long-term incentive plan, including income tax benefit of $223

     42,981         143         1,508         —          —          1,651   

Compensation expense, long-term incentive plan

     —           —           3,030         —          —          3,030   
                                                   

Balance, September 30, 2010

     36,883,434       $ 122,822       $ 262,181       $ 462,760      $ 18,017      $ 865,780   
                                                   

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

 

Hancock Holding Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     Nine Months Ended September 30,  
     2010     2009  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 35,187      $ 42,995   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     10,195        11,873   

Provision for loan losses

     54,601        38,756   

Loss in connection with other real estate owned

     1,255        493   

Deferred tax benefit

     (10,790     (176

Increase in cash surrender value of life insurance contracts

     (5,580     (4,820

Gain on sales/paydowns of securities available for sale, net

     —          (61

Gain on sale or disposal of other assets

     (294     (1,689

Gain on sale of loans held for sale

     (1,375     (483

Discount accretion on acquired FHLB borrowings

     (576     —     

Net amortization of securities premium/discount

     4,646        221   

Amortization of intangible assets

     2,177        1,194   

Stock-based compensation expense

     3,030        2,359   

Decrease in other liabilities

     (4,819     (31,124

Increase in FDIC Indemnification Asset

     (1,431     —     

Decrease (increase) in other assets

     42,924        (7,723

Proceeds from sale of loans held for sale

     831,760        286,142   

Originations of loans held for sale

     (837,266     (297,238

Excess tax benefit from share based payments

     (223     (390

Other, net

     (59     654   
                

Net cash provided by operating activities

     123,362        40,983   
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Decrease (increase) in interest-bearing time deposits

     151,680        (4,936

Proceeds from sales of securities available for sale

     —          7,643   

Proceeds from maturities of securities available for sale

     484,977        503,571   

Purchases of securities available for sale

     (476,655     (303,287

Proceeds from maturities of short term investments

     825,000        1,444,998   

Purchase of short term investments

     (754,937     (1,438,774

Net decrease in federal funds sold

     298        175,125   

Net decrease (increase) in loans

     106,311        (49,409

Purchases of property and equipment

     (18,187     (5,969

Proceeds from sales of property and equipment

     423        2,686   

Proceeds from sales of other real estate

     29,296        4,930   
                

Net cash provided by investing activities

     348,206        336,578   
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net decrease in deposits

     (487,014     (510,782

Net increase in federal funds purchased and securities sold under agreements to repurchase

     31,732        50,362   

Proceeds from issuance of short-term notes

     —          985,444   

Repayments of short-term notes

     (20,000     (938,444

Repayments of long-term notes

     (248     (174

Dividends paid

     (26,770     (23,099

Proceeds from exercise of stock options

     1,428        1,934   

Excess tax benefit from stock option exercises

     223        390   
                

Net cash (used in) financing activities

     (500,649     (434,369
                

NET DECREASE IN CASH AND DUE FROM BANKS

     (29,081     (56,808

CASH AND DUE FROM BANKS, BEGINNING

     204,714        199,775   
                

CASH AND DUE FROM BANKS, ENDING

   $ 175,633      $ 142,967   
                

SUPPLEMENTAL INFORMATION:

    

Restricted stock issued to employees of Hancock

   $ 583      $ 128   

SUPPLEMENTAL INFORMATION FOR NON-CASH

    

INVESTING AND FINANCING ACTIVITIES

    

Transfers from loans to other real estate

   $ 49,010      $ 12,521   

Financed sale of foreclosed property

     475        2,649   

Transfers from loans to loans held for sale

     10,876        —     

See notes to unaudited condensed consolidated financial statements.

 

4


Table of Contents

 

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements of Hancock Holding Company and all majority-owned subsidiaries (the “Company”) included herein are unaudited; however, they include all adjustments all of which are of a normal recurring nature which, in the opinion of management, are necessary to present fairly the Company’s Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, the Company’s Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2010 and 2009, the Company’s Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Although the Company believes the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to the Company’s organization and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2009 Annual Report on Form 10-K. The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the results expected for the full year.

Use of Estimates

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. The accounting principles the Company follows and the methods for applying these principles conform with accounting principles generally accepted in the United States of America and with general practices followed by the banking industry which requires management to make estimates and assumptions about future events. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for loan losses, intangible assets and goodwill, income taxes, pension and postretirement benefit plans and contingent liabilities. These estimates and assumptions are based on the Company’s best estimates and judgments. The Company evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets, rising unemployment levels and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. Allowance for loan losses, deferred income taxes, and goodwill are potentially subject to material changes in the near term. Actual results could differ significantly from those estimates.

Certain reclassifications have been made to conform prior year financial information to the current period presentation. These reclassifications had no material impact on the unaudited condensed consolidated financial statements.

Critical Accounting Policies

There have been no material changes or developments in the Company’s evaluation of accounting estimates and underlying assumptions or methodologies that the Company believes to be Critical Accounting Policies and Estimates as disclosed in our Form 10-K, for the year ended December 31, 2009.

 

5


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

2. Fair Value

The Financial Accounting Standards Board (FASB) issued authoritative guidance that establishes a framework for measuring fair value under generally accepted accounting principles (GAAP), clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. The guidance defines a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure fair value giving preference to quoted prices in active markets (level 1) and the lowest priority to unobservable inputs such as a reporting entity’s own data (level 3). Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets that are not active, observable inputs other than quoted prices, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Available for sale securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities, obligations of U.S. Government-sponsored agencies, and other debt and equity securities. Level 2 classified available for sale securities include mortgage-backed debt securities, collateralized mortgage obligations, and state and municipal bonds. The Company invests only in high quality securities of investment grade quality with a target duration, for the overall portfolio, generally between two to five years. The Company policies limit investments to securities having a rating of no less than “Baa”, or its equivalent by a Nationally Recognized Statistical Rating Agency, except for certain obligations of Mississippi, Louisiana, Florida or Alabama counties, parishes and municipalities. There were no transfers between levels.

The Company adopted the provisions of the guidance for nonfinancial assets and nonfinancial liabilities on January 1, 2009.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s financial assets and liabilities that are measured at fair value (in thousands) on a recurring basis at September 30, 2010 and December 31, 2009.

 

     As of September 30, 2010  
     Level 1      Level 2      Net Balance  

Assets

        

Available for sale securities:

        

Debt securities issued by the U.S. Treasury and other government corporations and agencies

   $ 118,268       $ —         $ 118,268   

Debt securities issued by states of the United

        

States and political subdivisions of the states

     —           196,174         196,174   

Corporate debt securities

     15,640         —           15,640   

Residential mortgage-backed securities

     —           889,163         889,163   

Collateralized mortgage obligations

     —           400,522         400,522   

Equity securities

     203         —           203   

Short-term investments

     144,993         —           144,993   

Loans carried at fair value

     —           37,560         37,560   
                          

Total assets

   $ 279,104       $ 1,523,419       $ 1,802,523   
                          

Liabilities

        

Swaps

   $ —         $ 3,963       $ 3,963   
                          

Total Liabilities

   $ —         $ 3,963       $ 3,963   
                          

 

6


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

2. Fair Value (continued)

 

 

     As of December 31, 2009  
     Level 1      Level 2      Total Balance  

Assets

        

Available for sale securities:

        

Debt securities issued by the U.S. Treasury and other government corporations and agencies

   $ 143,755       $ —         $ 143,755   

Debt securities issued by states of the United States and political subdivisions of the states

     —           191,668         191,668   

Corporate debt securities

     16,326         —           16,326   

Residential mortgage-backed securities

     —           1,110,547         1,110,547   

Collateralized mortgage obligations

     —           147,169         147,169   

Equity securities

     1,862         —           1,862   

Short-term investments

     214,771         —           214,771   

Loans carried at fair value

     —           38,021         38,021   
                          

Total assets

   $ 376,714       $ 1,487,405       $ 1,864,119   
                          

Liabilities

        

Swaps

   $ —         $ 2,209       $ 2,209   
                          

Total Liabilities

   $ —         $ 2,209       $ 2,209   
                          

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis and, therefore, are not included in the above table. Impaired loans are level 2 assets measured using appraisals from external parties of the collateral less any prior liens or based on recent sales activity for similar assets in the property’s market. Other real estate owned are level 2 properties recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values are determined by sales agreement or appraisal. Inputs include appraisal values on the properties or recent sales activity for similar assets in the property’s market. The following table presents for each of the fair value hierarchy levels the Company’s financial assets that are measured at fair value (in thousands) on a nonrecurring basis at September 30, 2010 and December 31, 2009.

 

     As of September 30, 2010  
     Level 1      Level 2      Net Balance  

Assets

        

Impaired loans

   $ —         $ 115,462       $ 115,462   

Other real estate owned

     —           31,206         31,206   
                          

Total assets

     —         $ 146,668       $ 146,668   
                          
     As of December 31, 2009  
     Level 1      Level 2      Total Balance  

Assets

        

Impaired loans

   $ —         $ 122,610       $ 122,610   

Other real estate owned

     —           13,786         13,786   
                          

Total assets

   $ —         $ 136,396       $ 136,396   
                          

 

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Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

2. Fair Value (continued)

 

 

The following methods and assumptions were used to estimate the fair value regarding disclosures about fair value of financial instruments of each class of financial instruments for which it is practicable to estimate:

Cash, Short-Term Investments and Federal Funds Sold - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities - Estimated fair values for securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments.

Loans, Net of Unearned Income - The fair value of loans is estimated by discounting the future cash flows using the current rates for similar loans with the same remaining maturities.

Accrued Interest Receivable and Accrued Interest Payable - The carrying amounts are a reasonable estimate of their fair values.

Deposits - The guidance requires that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and savings accounts, be assigned fair values equal to amounts payable upon demand (carrying amounts). The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Federal Funds Purchased - For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

Securities Sold under Agreements to Repurchase, FHLB Borrowings and Federal Funds Purchased - For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

Long-Term Notes - Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value. The fair value is estimated by discounting the future contractual cash flows using current market rates at which similar notes over the same remaining term could be obtained.

The estimated fair values of the Company’s financial instruments were as follows (in thousands):

 

     September 30, 2010      December 31, 2009  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Financial assets:

           

Cash, interest-bearing deposits, federal funds sold, and short-term investments

   $ 751,139       $ 751,139       $ 1,001,976       $ 1,001,976   

Securities

     1,619,869         1,619,869         1,611,327         1,611,327   

Loans, net of unearned income

     4,961,898         5,013,262         5,150,287         5,263,246   

Accrued interest receivable

     29,849         29,849         35,468         35,468   

Financial liabilities:

           

Deposits

   $ 6,708,798       $ 6,762,557       $ 7,195,812       $ 7,241,363   

Federal funds purchased

     3,200         3,200         250         250   

Securities sold under agreements to repurchase

     513,239         513,239         484,457         484,457   

FHLB Borrowings

     10,229         10,229         30,805         30,805   

Long-term notes

     423         423         671         671   

Accrued interest payable

     3,531         3,531         4,824         4,824   

 

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Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

3. Loans and Allowance for Loan Losses

Loans, net of unearned income, totaled $4.9 billion at September 30, 2010 compared to $5.1 billion at December 31, 2009. The Company also held $54.2 million and $36.1 million in loans held for sale at September 30, 2010 and December 31, 2009, respectively, carried at lower of cost or fair value. At June 30, 2010, the Company transferred $10.6 million of credit card loans to loans held for sale. These loans are originated on a best-efforts basis, whereby a commitment by a third party to purchase the loan has been received concurrent with the Banks’ commitment to the borrower to originate the loan.

In some instances, loans are placed on nonaccrual status. All accrued but uncollected interest related to the loan is deducted from income in the period the loan is assigned a nonaccrual status. For such period as a loan is in nonaccrual status, any cash receipts are applied first to principal, second to expenses incurred to cause payment to be made and lastly to the recovery of any reversed interest income and interest that would be due and owing subsequent to the loan being placed on nonaccrual status. Nonaccrual loans, restructured loans, and foreclosed assets, which make up total non-performing assets, were $175.5 million and $99.8 million and amounted to approximately 3.55% and 1.97% of total loans at September 30, 2010 and December 31, 2009, respectively.

Included in nonaccrual loans is $9.1 million in restructured commercial loans. Total restructured loans for the period were $10.7 million. Loan restructurings occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and, consequently, a modification that would otherwise not be considered is granted to the borrower. The concessions involve paying interest only for a period of 6 to 12 months. Hancock does not typically lower the interest rate or forgive principal or interest as part of the loan modification. There have been no commitments to lend additional funds to any borrowers whose loans have been restructured. Troubled debt restructurings can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing to accrue, depending on the individual facts and circumstances of the borrower. The evaluation of the borrower’s financial condition and prospects include consideration of the borrower’s sustained historical repayment performance for a reasonable period prior to the date on which the loan is returned to accrual status. A sustained period of repayment performance generally would be a minimum of six months and would involve payments of cash or cash equivalents. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a nonaccrual loan.

The amount of interest that would have been recognized on nonaccrual loans for the three and nine months ended September 30, 2010 was approximately $2.0 million and $5.1 million, respectively. Interest recovered on nonaccrual loans that were recorded in net income for the three and nine months ended September 30, 2010 was $0.6 million and $0.8 million, respectively.

The following table presents information on loans evaluated for possible impairment loss:

 

     September 30, 2010      December 31, 2009  
     (In thousands)  

Impaired loans

     

Requiring a loss allowance

   $ 41,745       $ 38,839   

Not requiring a loss allowance

     83,944         93,693   
                 

Total recorded investment in impaired loans

     125,689         132,532   
                 

Impairment loss allowance required

   $ 10,227       $ 10,972   

 

9


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

3. Loans and Allowance for Loan Losses (continued)

 

 

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010      2009      2010      2009  
     (In thousands)  

Balance of allowance for loan losses at beginning of period

   $ 77,221       $ 63,850       $ 66,050       $ 61,725   

Provision for loan losses, net

     16,258         13,495         54,601         38,756   

Loans charged-off:

           

Commercial, real estate and mortgage

     12,690         10,691         35,898         28,481   

Direct and indirect consumer

     1,911         2,028         5,479         5,712   

Finance company

     1,578         1,355         4,396         4,078   

Demand deposit accounts

     307         688         871         1,912   
                                   

Total charge-offs

     16,486         14,762         46,644         40,183   
                                   

Recoveries of loans previously charged-off:

           

Commercial, real estate and mortgage

     1,876         338         3,132         692   

Direct and indirect consumer

     538         472         1,403         1,334   

Finance company

     210         203         714         615   

Demand deposit accounts

     108         254         469         911   
                                   

Total recoveries

     2,732         1,267         5,718         3,552   
                                   

Net charge-offs

     13,754         13,495         40,926         36,631   
                                   

Balance of allowance for loan losses at end of period

   $ 79,725       $ 63,850       $ 79,725       $ 63,850   
                                   

Changes in the carrying amount of covered acquired loans and accretable yield for loans receivable at September 30, 2010 are presented in the following table (in thousands):

 

     Three Months Ended
September 30, 2010
    Nine Months Ended
September 30, 2010
 
     Net
Accretable
Discount
    Carrying
Amount of
Loans
    Net
Accretable
Discount
    Carrying
Amount of
Loans
 
     (In thousands)     (In thousands)  

Balance at beginning of period

   $ 285,675      $ 863,446      $ 315,782      $ 950,430   

Payments received, net

     —          (33,329     —          (150,420

Accretion

     (11,920     11,920        (42,027     42,027   
                                

Balance at end of period

   $ 273,755      $ 842,037      $ 273,755      $ 842,037   
                                

The carrying value of loans receivable with deterioration of credit quality accounted for using the cost recovery method was $54.5 million at September 30, 2010, and at December 31, 2009. Each of these loans is on nonaccrual status. Loans with deterioration of credit quality that have an accretable difference are not included in nonperforming balances even though the customer may be contractually past due. These loans will accrete interest income over the remaining life of the loan. There was no provision for loan loss recognized for purchased loans during the three months ended September 30, 2010.

The unpaid principal balance for purchased loans was $1,239 million and $1,462 million at September 30, 2010, and December 31, 2009, respectively.

 

10


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

4. Earnings Per Share

The Company adopted the FASB’s authoritative guidance regarding the determination of whether instruments granted in share-based payment transactions are participating securities. This guidance provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the computation of earnings per share pursuant to the two-class method. This guidance was effective January 1, 2009.

Following is a summary of the information used in the computation of earnings per common share (in thousands), using the two-class method:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010      2009      2010      2009  

Numerator:

           

Net income to common shareholders

   $ 14,853       $ 15,218       $ 35,187       $ 42,995   

Net income allocated to participating securities - basic and diluted

     58         47         174         142   
                                   

Net income allocated to common shareholders - basic and diluted

   $ 14,795       $ 15,171       $ 35,013       $ 42,853   
                                   

Denominator:

           

Weighted-average common shares - basic

     36,880         31,857         36,864         31,828   

Dilutive potential common shares

     114         201         188         175   
                                   

Weighted average common shares - diluted

     36,994         32,058         37,052         32,003   
                                   

Earnings per common share:

           

Basic

   $ 0.40       $ 0.48       $ 0.95       $ 1.35   

Diluted

   $ 0.40       $ 0.47       $ 0.94       $ 1.34   

There were no anti-dilutive share-based incentives outstanding for the three and nine months ended September 30, 2010 and September 30, 2009.

 

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Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

5. Share-Based Payment Arrangements

Stock Option Plans

Hancock maintains incentive compensation plans that incorporate share-based compensation. These plans have been approved by the Company’s shareholders. Detailed descriptions of these plans were included in note 11 to the consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2009. No options were granted in the first nine months of 2010.

A summary of option activity under the plans for the nine months ended September 30, 2010, and changes during the nine months then ended is presented below:

 

Options

   Number of
Shares
    Weighted-
Average
Exercise
Price ($)
     Weighted-
Average
Remaining
Contractual
Term
(Years)
     Aggregate
Intrinsic
Value ($000)
 

Outstanding at January 1, 2010

     1,000,249      $ 35.15         6.3      

Granted

     —        $ —           

Exercised

     (40,702   $ 25.50          $ 645   

Forfeited or expired

     (4,956   $ —           
                

Outstanding at September 30, 2010

     954,591      $ 35.53         5.7       $ 1,239   
                                  

Exercisable at September 30, 2010

     601,240      $ 32.92         4.4       $ 1,239   
                                  

Share options expected to vest

     353,351      $ 39.96         8.0       $ —     
                                  

The total intrinsic value of options exercised during the nine months ended September 30, 2010 and 2009 was $0.6 million and $1.1 million, respectively.

A summary of the status of the Company’s nonvested shares as of September 30, 2010, and changes during the nine months ended September 30, 2010, is presented below:

 

     Number of
Shares
    Weighted-
Average
Grant-Date
Fair Value ($)
 

Nonvested at January 1, 2010

     688,370      $ 24.19   

Granted

     30,488      $ 40.17   

Vested

     (79,441   $ 20.62   

Forfeited

     (9,263   $ 34.33   
          

Nonvested at September 30, 2010

     630,154      $ 25.32   
          

As of September 30, 2010, there was $9.9 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 3.2 years. The total fair value of shares which vested during the nine months ended September 30, 2010 and 2009 was $1.6 million and $1.9 million, respectively.

 

12


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

6. Retirement Plans

Net periodic benefits cost includes the following components for the three and nine months ended September 30, 2010 and 2009:

 

     Pension Benefits     Other Post-retirement Benefits  
     Three Months Ended September 30,  
     2010     2009     2010     2009  
     (In thousands)  

Service cost

   $ 875      $ 777      $ 31      $ 28   

Interest cost

     1,308        1,208        139        142   

Expected return on plan assets

     (1,162     (968     —          —     

Amortization of prior service cost

     —          —          (14     (13

Amortization of net loss

     571        662        76        74   

Amortization of transition obligation

     —          —          2        1   
                                

Net periodic benefit cost

   $ 1,592      $ 1,679      $ 234      $ 232   
                                
     Pension Benefits     Other Post-retirement Benefits  
     Nine Months Ended September 30,  
     2010     2009     2010     2009  
     (In thousands)  

Service cost

   $ 2,625      $ 2,330      $ 93      $ 85   

Interest cost

     3,925        3,625        417        424   

Expected return on plan assets

     (3,485     (2,904     —          —     

Amortization of prior service cost

     —          —          (40     (40

Amortization of net loss

     1,711        1,986        227        222   

Amortization of transition obligation

     —          —          4        4   
                                

Net periodic benefit cost

   $ 4,776      $ 5,037      $ 701      $ 695   
                                

The Company anticipates that it will contribute $6.7 million to its pension plan and approximately $1.3 million to its post-retirement benefits in 2010. During the first nine months of 2010, the Company contributed approximately $5.0 million to its pension plan and approximately $1.0 million for post-retirement benefits.

 

13


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

7. Other Service Charges, Commission and Fees, and Other Income

Components of other service charges, commission and fees are as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010      2009      2010      2009  
     (In thousands)  

Trust fees

   $ 4,138       $ 4,008       $ 12,391       $ 11,189   

Credit card merchant discount fees

     3,649         2,845         11,173         8,309   

Income from insurance operations

     3,535         3,526         10,688         11,026   

Investment and annuity fees

     2,906         2,007         7,848         6,559   

ATM fees

     2,641         1,862         6,912         5,536   
                                   

Total other service charges, commissions and fees

   $ 16,869       $ 14,248       $ 49,012       $ 42,619   
                                   

Components of other income are as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010     2009      2010      2009  
     (In thousands)  

Secondary mortgage market operations

   $ 2,569      $ 1,482       $ 5,737       $ 4,467   

Income from bank owned life insurance

     1,419        1,322         4,096         4,591   

Appraisal fee income

     180        227         549         645   

Letter of credit fees

     377        343         1,009         1,015   

(Loss)/gain on sale of property and equipment

     (1     14         294         1,374   

Other

     2,463        916         6,037         5,656   
                                  

Total other income

   $ 7,007      $ 4,304       $ 17,722       $ 17,748   
                                  

8. Other Expense

Components of other expense are as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010      2009      2010      2009  
     (In thousands)  

Data processing expense

   $ 5,478       $ 4,660       $ 17,998       $ 13,999   

Postage and communications

     3,103         2,313         8,326         6,239   

Ad valorem and franchise taxes

     707         780         2,736         2,313   

Legal and professional services

     3,698         2,749         11,703         7,866   

Stationery and supplies

     467         490         1,824         1,398   

Advertising

     2,269         1,301         5,807         3,729   

Deposit insurance and regulatory fees

     2,969         2,335         8,507         10,279   

Training expenses

     99         116         432         295   

Other fees

     868         913         2,746         2,909   

Annuity expense

     83         183         457         649   

Claims paid

     295         330         1,011         907   

Other expense

     3,325         2,571         12,651         6,847   
                                   

Total other expense

   $ 23,361       $ 18,741       $ 74,198       $ 57,430   
                                   

 

14


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

9. Income Taxes

There were no material uncertain tax positions as of September 30, 2010 and December 31, 2009. The Company does not expect that unrecognized tax benefits will significantly increase or decrease within the next 12 months.

It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. The interest accrual is considered immaterial to the Company’s consolidated balance sheet as of September 30, 2010 and December 31, 2009.

The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various returns in the states where its banking offices are located. Its filed income tax returns are no longer subject to examination by taxing authorities for years before 2007.

10. Segment Reporting

The Company’s primary segments are divided into the Mississippi (MS), Louisiana (LA), Alabama (AL), and Other. Effective January 1, 2010, the Company’s Florida segment was merged into Mississippi. The activity and assets of Peoples First acquired in December 2009 are included in Mississippi. Each segment offers the same products and services but is managed separately due to different pricing, product demand, and consumer markets. Each segment offers commercial, consumer and mortgage loans and deposit services. In the following tables, the column “Other” includes additional consolidated subsidiaries of the Company: Hancock Investment Services, Inc. and subsidiaries, Hancock Insurance Agency, Inc. and subsidiaries, Harrison Finance Company, Magna Insurance Company, Lighthouse Services Corp., Invest-Sure, Inc., Peoples First Transportation, Inc., Community First and subsidiaries, and three real estate corporations owning land and buildings that house bank branches and other facilities.

 

15


Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

10. Segment Reporting (continued)

 

 

Following is selected information for the Company’s segments (in thousands):

 

     Three Months Ended September 30, 2010        
     MS     LA      AL     Other      Eliminations     Consolidated  

Interest income

   $ 46,206      $ 32,747       $ 2,297      $ 5,381       $ (1,233   $ 85,398   

Interest expense

     13,211        4,972         479        1,031         (1,117     18,576   
                                                  

Net interest income

     32,995        27,775         1,818        4,350         (116     66,822   

Provision for loan losses

     6,667        7,491         389        1,711         —          16,258   

Noninterest income

     16,722        11,134         501        6,865         (14     35,208   

Depreciation and amortization

     2,199        656         80        207         —          3,142   

Other noninterest expense

     34,828        20,231         1,587        8,302         (30     64,918   
                                                  

Net income before income taxes

     6,023        10,531         263        995         (100     17,712   

Income tax expense (benefit)

     (322     2,544         69        568         —          2,859   
                                                  

Net income (loss)

   $ 6,345      $ 7,987       $ 194      $ 427       $ (100   $ 14,853   
                                                  

Total assets

   $ 5,251,092      $ 2,853,320       $ 184,905      $ 1,143,518       $ (1,193,473   $ 8,239,362   
                                                  

Total interest income from affiliates

   $ 1,113      $ —         $ —        $ 120       $ (1,233   $ —     

Total interest income from external customers

   $ 45,093      $ 32,747       $ 2,297      $ 5,261       $ —        $ 85,398   
     Three Months Ended September 30, 2009        
     MS     LA      AL     Other      Eliminations     Consolidated  

Interest income

   $ 39,003      $ 34,282       $ 2,184      $ 5,879       $ (1,590   $ 79,758   

Interest expense

     14,618        6,929         657        1,275         (1,475     22,004   
                                                  

Net interest income

     24,385        27,353         1,527        4,604         (115     57,754   

Provision for loan losses

     6,741        3,496         1,934        1,324         —          13,495   

Noninterest income

     12,639        11,456         572        5,750         (9     30,408   

Depreciation and amortization

     2,693        857         78        130         —          3,758   

Other noninterest expense

     23,464        20,692         1,154        6,706         (25     51,991   
                                                  

Net income before income taxes

     4,126        13,764         (1,067     2,194         (99     18,918   

Income tax expense (benefit)

     (611     3,911         (391     791         —          3,700   
                                                  

Net income (loss)

   $ 4,737      $ 9,853       $ (676   $ 1,403       $ (99   $ 15,218   
                                                  

Total assets

   $ 4,027,553      $ 2,836,119       $ 168,974      $ 910,594       $ (1,138,190   $ 6,805,050   
                                                  

Total interest income from affiliates

   $ 1,590      $ —         $ —        $ —         $ (1,590   $ —     

Total interest income from external customers

   $ 37,413      $ 34,282       $ 2,184      $ 5,879       $ —        $ 79,758   

 

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Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

10. Segment Reporting (continued)

 

 

     Nine Months Ended September 30, 2010        
     MS     LA      AL     Other      Eliminations     Consolidated  

Interest income

   $ 148,483      $ 99,449       $ 6,692      $ 16,681       $ (3,788   $ 267,517   

Interest expense

     47,968        16,795         1,662        3,261         (3,442     66,244   
                                                  

Net interest income

     100,515        82,654         5,030        13,420         (346     201,273   

Provision for loan losses

     29,138        17,229         3,771        4,463         —          54,601   

Noninterest income

     48,419        32,224         1,444        19,856         (61     101,882   

Depreciation and amortization

     6,998        2,335         241        621         —          10,195   

Other noninterest expense

     107,671        60,688         4,504        25,053         (109     197,807   
                                                  

Net income before income taxes

     5,127        34,626         (2,042     3,139         (298     40,552   

Income tax expense (benefit)

     (3,428     9,003         (781     571         —          5,365   
                                                  

Net income (loss)

   $ 8,555      $ 25,623       $ (1,261   $ 2,568       $ (298   $ 35,187   
                                                  

Total assets

   $ 5,251,092      $ 2,853,320       $ 184,905      $ 1,143,518       $ (1,193,473   $ 8,239,362   
                                                  

Total interest income from affiliates

   $ 3,415      $ 9       $ 2      $ 362       $ (3,788   $ —     

Total interest income from external customers

   $ 145,068      $ 99,440       $ 6,690      $ 16,319       $ —        $ 267,517   
     Nine Months Ended September 30, 2009        
     MS     LA      AL     Other      Eliminations     Consolidated  

Interest income

   $ 117,556      $ 104,023       $ 6,180      $ 18,203       $ (4,651   $ 241,311   

Interest expense

     48,659        23,164         2,128        3,775         (4,306     73,420   
                                                  

Net interest income

     68,897        80,859         4,052        14,428         (345     167,891   

Provision for loan losses

     15,889        12,745         5,786        4,336         —          38,756   

Noninterest income

     41,454        31,598         1,190        19,753         (27     93,968   

Depreciation and amortization

     8,642        2,601         233        396         —          11,872   

Other noninterest expense

     70,443        61,951         3,975        21,646         (74     157,941   
                                                  

Net income before income taxes

     15,377        35,160         (4,752     7,803         (298     53,290   

Income tax expense (benefit)

     (386     9,514         (1,715     2,882         —          10,295   
                                                  

Net income (loss)

   $ 15,763      $ 25,646       $ (3,037   $ 4,921       $ (298   $ 42,995   
                                                  

Total assets

   $ 4,027,553      $ 2,836,119       $ 168,974      $ 910,594       $ (1,138,190   $ 6,805,050   
                                                  

Total interest income from affiliates

   $ 4,639      $ —         $ —        $ 12       $ (4,651   $ —     

Total interest income from external customers

   $ 112,917      $ 104,023       $ 6,180      $ 18,191       $ —        $ 241,311   

 

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Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

 

11. New Accounting Pronouncements

In October, 2010, the Financial Accounting Standards Board (FASB) issued guidance on accounting for costs associated with acquiring or renewing insurance contracts. The objective is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The accounting update specifies which costs incurred in the acquisition of new and renewal contracts should be capitalized. The guidance is effective for fiscal years beginning after December 15, 2011. While the guidance is required to be applied prospectively upon adoption, retrospective application is also permitted (to all prior periods presented). Early adoption is also permitted, but only at the beginning of an entity’s annual reporting period. This guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In July, 2010, the FASB issued guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The new guidance enhances disclosures to provide information for both the finance receivables and the related allowance for credit losses at disaggregated levels presented by portfolio segment which is the level an entity determines its allowance for credit losses and class which is defined as a group of receivables determined based on measurement basis, risk characteristics and the entity’s method for monitoring and assessing credit risk. A rollforward schedule by portfolio segment of the allowance for credit losses and the related ending balance of finance receivables with significant purchases and sales of finance receivables will be required. The following disclosures are required to be presented by class: credit quality of the financing receivables portfolio at the end of the reporting period; the aging of past due financing receivables at the end of the period; the nature and the extent of troubled debt restructurings that occurred during the period and their impact of the allowance for credit losses; the nature and extent of troubled debt restructurings that occurred within the last year that have defaulted in the current reporting period and their impact on the allowance for credit losses; the nonacrrual status of financing receivables; and impaired financing receivables. The new disclosures of information as of the end of the reporting period will become effective for both interim and annual reporting periods ending after December 15, 2010. Specific items regarding activity that occurred before the issuance of the guidance, such as the allowance rollforward and modification disclosures will be required for periods beginning after December 15, 2010. The new disclosure requirements will have no impact on the Company’s financial condition or results of operations.

In May 2010, the FASB issued guidance on receivables regarding the effect of a loan modification when the loan is part of a pool that is accounted for as a single asset. Modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. This guidance is effective prospectively for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. This guidance did not have a material impact on the Company’s financial condition or results of operations.

In February 2010, the FASB issued guidance removing the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in both issued and revised financial statements. This amendment was effective immediately and had no impact on the Company’s financial condition or results of operations.

 

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Hancock Holding Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

 

11. New Accounting Pronouncements (continued)

 

 

In January 2010, the FASB issued guidance on fair value measurements and disclosures that requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, the guidance now requires a reporting entity to disclose separately the amounts of significant transfers in and out of level 1 and level 2 fair value measurements and describe the reasons for the transfers and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, the guidance clarifies the requirements of reporting fair value measurement for each class of assets and liabilities and clarifies that a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities based on the nature and risks of the investments. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in level 3 fair value measurements which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The adoption of the guidance did not have a material impact on the Company’s financial condition or results of operations and the adoption of the additional disclosures of level 3 fair value measurements is not expected to have a material impact on the Company’s financial condition or results of operations.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

General

The following discussion should be read in conjunction with our financial statements included with this report and our financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2009 Annual Report on Form 10-K. Our discussion includes various forward-looking statements about our markets, the demand for our products and services and our future results. These statements are based on certain assumptions we consider reasonable. For information about these assumptions, you should refer to the section below entitled “Forward-Looking Statements.”

We were organized in 1984 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and are headquartered in Gulfport, Mississippi. We currently operate more than 180 banking and financial services offices and more than 160 automated teller machines (ATMs) in the states of Mississippi, Louisiana, Florida and Alabama through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi (Hancock Bank MS), Hancock Bank of Louisiana, Baton Rouge, Louisiana (Hancock Bank LA) and Hancock Bank of Alabama, Mobile, Alabama (Hancock Bank AL). Hancock Bank MS, Hancock Bank LA, and Hancock Bank AL are referred to collectively as the “Banks.” Hancock Bank subsidiaries include Hancock Investment Services, Hancock Insurance Agency, and Harrison Finance Company.

The Banks are community oriented and focus primarily on offering commercial, consumer and mortgage loans and deposit services to individuals and small to middle market businesses in their respective market areas. Our operating strategy is to provide our customers with the financial sophistication and breadth of products of a regional bank, while successfully retaining the local appeal and level of service of a community bank. At September 30, 2010, we had total assets of $8.2 billion and employed 2,235 persons on a full-time equivalent basis.

RESULTS OF OPERATIONS

Our third quarter 2010 net income was $14.9 million, an increase of $8.4 million, or 129%, compared to the second quarter of 2010 and a decrease of $0.4 million, or 2.4%, from the third quarter of 2009. Diluted earnings per share were $0.40, an increase of $0.23, or 135%, compared to the second quarter of 2010 and a decrease of $0.08, or 17%, from the same quarter a year ago. Return on average assets for the third quarter of 2010 was 0.70% compared to 0.31% in the second quarter of 2010 and compared to 0.87% for the third quarter of 2009. Our 2010 results include the impact of our common stock offering and acquisition of Peoples First Community Bank (Peoples First), both of which were completed in the fourth quarter of 2009.

The most significant driver of the Company’s improved earnings from last quarter was reflected in an $8.3 million reduction in the provision for loan losses. The lower provision resulted from the absence of any need to add to last quarter’s specific reserve related to the Gulf Oil Spill ($5.2 million) and also a lower level of required reserve build related to the Company’s loan portfolio ($2.5 million this quarter versus $5.4 million last quarter). The lower level of required reserve build is due to a lower level of delinquencies. The Company also reduced operating expenses $4.1 million, or 5.6%, from last quarter, with much of that improvement related to the absence of second quarter nonrecurring merger costs related to the Peoples First acquisition, as well as on-going expense efficiencies.

Net charge-offs for 2010’s third quarter were $13.8 million, or 1.10% of average loans, slightly down from the $13.9 million, or 1.11% of average loans reported in the second quarter of 2010, and slightly up from the $13.5 million, or 1.24% of average loans, reported for the third quarter of 2009. Non-performing assets as a percent of total loans and foreclosed assets were 3.55% (2.63% excluding Peoples First) at September 30, 2010, compared to 3.89% at June 30, 2010, but were up from 1.06% at September 30, 2009. Non-performing assets (which includes nonaccrual loans, restructured loans and foreclosed assets) decreased $19.6 million from June 30, 2010, but increased $130 million from September 30, 2009, mostly due to the acquisition of Peoples First. Loans 90 days past due or greater (accruing) as a percent of period-end loans decreased 3 basis points from September 30, 2009 to 0.15% at September 30, 2010. We recorded a provision for loan losses for the third quarter of $16.3 million, a decrease of $8.3 million from the second quarter of 2010 and an increase of $2.8 million from the third quarter of 2009. Our allowance for loan losses was $79.7 million at September 30, 2010, an increase of $2.5 million from June 30, 2010 and an increase of $15.9 million from September 30, 2009. The ratio of the allowance for loan losses as a percent of period-end loans was 1.62% at September 30, 2010, compared to 1.55% at June 30, 2010, and compared to 1.50% at September 30, 2009.

 

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Total assets at September 30, 2010 were $8.2 billion, down from $8.70 billion at December 31, 2009. Compared to September 30, 2009, total assets increased $1.4 billion, or 21%. Period-end loans were down $206.5 million, or 4.0% from December 31, 2009, and were up $655.5 million, or 15%, from the same quarter a year ago. Period-end deposits decreased $487.0 million, or 7% from December 31, 2009, and increased $1.3 billion, or 24%, from September 30, 2009. The increases in period-end loans and period-end deposits, compared to September 30, 2009, were primarily due to the acquisition of Peoples First. We also remain very well capitalized with total equity of $865.8 million at September 30, 2010, up $28.1 million, or 3% from December 31, 2009 and up $211.0 million, or 32%, from September 30, 2009.

Net Interest Income

Net interest income (taxable equivalent or te) for the third quarter increased $9.0 million, or 15%, while the net interest margin (te) of 3.85% was 1 basis point narrower than the same quarter a year ago. Growth in average earning assets was strong compared to the same quarter a year ago with an increase of $929.2 million, or 15%, mostly reflected in higher average loans (up $674.3 million, or 16%) and was due primarily to the fourth quarter 2009 acquisition of Peoples First.

Provision for Loan Losses

The amount of the allowance for loan losses equals the cumulative total of the provision for loan losses, reduced by actual loan charge-offs, and increased by recoveries of loans previously charged-off. A specific loan is charged-off when management believes, after considering, among other things, the borrower’s financial condition and the value of any collateral, that collection of the loan is unlikely. Provisions are made to the allowance to reflect incurred losses associated with our loan portfolio. There was no provision for loan losses recorded on purchased loans for the period ended September 30, 2010. We recorded a provision for loan losses of $16.3 million in the third quarter which is a $2.8 million, or 20%, increase in the provision for loan losses compared to $13.5 million for the quarter ended September 30, 2009. This increase was necessary to adjust the allowance to the level dictated by our reserving methodologies. The provision remains elevated due to the ongoing stress on commercial real estate values. In addition, we added an additional $5.2 million specific reserve due to the Gulf Oil Spill in the second quarter of 2010 based on a detailed review of potentially impacted credits. While no increase in this specific reserve was necessary in the third quarter, we are continuing to monitor the impact the Gulf Oil Spill is having on our affected markets.

Allowance for Loan Losses and Asset Quality

At September 30, 2010, the allowance for loan losses was $79.7 million compared with $66.1 million at December 31, 2009, an increase of $13.6 million. The increase in the allowance for loan losses through the first nine months of 2010 is primarily attributed to an additional $5.2 million provision designated to the 2010 Gulf Oil Spill based on detailed review of potentially impacted credits. In addition, an increased estimated provision of $5.4 million was added for specific reserve analysis for those loans considered impaired under FAS 114 and $3.0 million was added for loans that are considered non-impaired under FAS 5. We do not offer subprime home mortgage loans, and therefore, our increased reserve is not associated with those high risk loans. The only higher risk loans we offer are through our finance company but those loans are immaterial to our loan portfolio. Management utilizes quantitative methodologies and modeling to determine the adequacy of the allowance for loan and lease losses. Within the allowance for loan losses modeling, adequate segregation of geographic and specific loan types are documented and analyzed for appropriate risk metrics. We maintain a continuous credit quality policy that establishes acceptable loan-to-value thresholds on the front end underwriting process. Residential home values are continuously monitored by each market. A detailed description of our methodology was included in our annual report on Form 10-K for the year ended December 31, 2009. Management believes the September 30, 2010 allowance level is adequate.

 

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Net charge-offs, as a percent of average loans, were 1.10% for the third quarter of 2010, compared to 1.24% in the third quarter of 2009. The percent variance over the one year period is materially impacted by the Peoples First Community Bank FDIC transaction. Of the overall increase in net charge-offs of $0.3 million, $1.5 million was reflected in mortgage loans with offsetting decreases in commercial loans ($1.0 million) and consumer loans ($0.2 million).

Nonaccrual loans were $141.9 million at September 30, 2010, an increase of $106.3 million over $35.6 million at September 30, 2009. $54.5 million of the increase is due to the acquisition of Peoples First. The remainder of the increase, $51.8 million, is due to continued deterioration in our legacy loan portfolio, mostly related to the continued decline in real estate values and overall duration of the current economic recession.

The following information is useful in determining the adequacy of the loan loss allowance and loan loss provision. The ratios are calculated using average loan balances (amounts in thousands).

 

     At and for the  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Net charge-offs to average loans (annualized)

     1.10     1.24     1.09     1.14

Provision for loan losses to average loans (annualized)

     1.30     1.24     1.45     1.21

Allowance for loan losses as a percent of period-end loans

     1.62     1.50     1.62     1.50

Gross charge-offs

   $ 16,486      $ 14,762      $ 46,644      $ 40,183   

Gross recoveries

   $ 2,732      $ 1,267      $ 5,718      $ 3,552   

Nonaccrual loans

   $ 141,943      $ 35,558      $ 141,943      $ 35,558   

Accruing loans 90 days or more past due

   $ 7,292      $ 7,766      $ 7,292      $ 7,766   

Noninterest Income

Noninterest income for the third quarter of 2010 was up $4.8 million, or 16%, compared to the same quarter a year ago and was up $8.0 million, or 8%, for the first nine months of 2010 compared to the same period of 2009.

Credit card merchant discount fees were up $0.8 million, or 28%, compared to the third quarter of 2009 and were up $2.9 million, or 34%, compared to the first nine months of 2009, mainly due to increased activity from the Peoples First acquisition.

Service charges on deposit accounts decreased $0.5 million, or 4%, compared to the same quarter a year ago mainly because of lower overdraft and NSF item counts due to new Federal Reserve consumer protection regulations. When comparing the first nine months of 2010 to the same period of 2009, there was an increase of $1.6 million, or 5%. The increase was due to a risk management program that was put in place to better manage risk and from increased deposit accounts from the Peoples First acquisition. Service charges include periodic account maintenance fees for both commercial and personal customers, charges for specific transactions or services, such as processing return items or wire transfers, and other revenue associated with deposit accounts, such as commissions on check sales.

ATM fees increased $0.8 million, or 42%, compared to the third quarter of 2009 and increased $1.4 million, or 25%, compared to the first nine months of 2009, due to increased activity from the Peoples First acquisition and increased growth in our Mississippi and Louisiana markets.

 

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Investment and annuity fees were up $0.9 million, or 45%, compared to the third quarter of 2009 and were up $1.3 million, or 20%, when compared to the first nine months of 2009, mainly because the third quarter of 2009 presented a large decrease in production due to poor market conditions.

Secondary mortgage market operations income was up $1.1 million, or 73%, compared to the third quarter of 2009 and was up $1.3 million, or 28%, when compared to the first nine months of 2009, primarily due to increased originations and refinancing due to continued low mortgage interest rates.

Compared to the third quarter of 2009, gain on sale of property and equipment was unchanged, but decreased $1.1 million, or 79%, when compared to the first nine months of 2009, mainly due to gains on sales of land in 2009.

Other income was up $1.5 million compared to the third quarter of 2009 mainly due to accretion on the FDIC indemnification asset from our fourth quarter 2009 acquisition of People First. On a year to date basis, other income increased $0.4 million, or 6%, due to the indemnification asset accretion during the third quarter of 2010 that was offset by an increase in other investments and BOLI income for the same period of 2009.

The components of noninterest income for the three and nine months ended September 30, 2010 and 2009 are presented in the following table:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  
     (In thousands)  

Service charges on deposit accounts

   $ 11,332      $ 11,795      $ 35,148      $ 33,540   

Trust fees

     4,138        4,008        12,391        11,189   

Credit card merchant discount fees

     3,649        2,845        11,173        8,309   

Income from insurance operations

     3,535        3,526        10,688        11,026   

Investment and annuity fees

     2,906        2,007        7,848        6,559   

ATM fees

     2,641        1,862        6,912        5,536   

Secondary mortgage market operations

     2,569        1,482        5,737        4,467   

Income from bank owned life insurance

     1,419        1,322        4,096        4,591   

Outsourced check income/(loss)

     (53     (24     (146     (44

Letter of credit fees

     377        343        1,009        1,015   

Gain/(loss) on sale of property and equipment

     (1     14        294        1,374   

Other income

     2,696        1,167        6,732        6,345   

Securities transactions gains, net

     —          61        —          61   
                                

Total noninterest income

   $ 35,208      $ 30,408      $ 101,882      $ 93,968   
                                

Noninterest Expense

Operating expenses for the third quarter of 2010 were $12.3 million, or 22%, higher compared to the same quarter a year ago and were $38.2 million, or 22%, higher than the first nine months of 2009.

Total personnel expense increased $6.8 million, or 23%, compared to the same quarter last year and increased $17.4 million, or 20% compared to the first nine months of 2009. The increase is mainly due the additional full time equivalent employees from the Peoples First acquisition. Total personnel expense consists of employee compensation and employee benefits. Employee compensation includes base salaries and contract labor costs, compensation earned under sales-based and other employee incentive programs, and compensation expense under management incentive plans. Employee benefits, in addition to payroll taxes, are the cost of providing health benefits for active and retired employees and the cost of providing pension benefits through both the defined-benefit plans and a 401(k) employee savings plan.

 

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Equipment and data processing expense was up $0.9 million, or 13%, compared to the third quarter of 2009 and was up $4.3 million, or 20%, compared to the first nine months of 2009 due to increased operating activity and the system conversion project associated with Peoples First.

Legal and professional services increased $0.9 million, or 35%, compared to the third quarter of 2009, mostly due to increased indirect dealer fees in Mississippi and increased foreclosure expenses. Compared to the first nine months of 2009, legal and professional services increased $3.8 million, or 49%. The increase was mainly due to the costs associated with the acquisition, valuation and conversion of Peoples First.

Net occupancy expense was up $0.5 million, or 10%, compared to the same quarter a year ago and was up $2.6 million, or 17%, compared to the first nine months of 2009, mainly due to the facilities acquired from Peoples First. Increased expenses related mainly to building rent, utilities, property taxes and building insurance.

Advertising expense increased $1.0 million, or 74%, compared to the third quarter of 2009 and increased $2.1 million, or 56%, compared to the first nine months of 2009 mostly due to increased television, radio and newspaper ads and direct mail activity in our new Florida market areas.

Deposit insurance and regulatory fees increased $0.6 million, or 27%, compared to the same quarter a year ago and was down $1.8 million, or 17%, compared to the first nine months of 2009 mostly due to a special FDIC assessment in the second quarter of 2009.

Other real estate owned expense decreased $0.2 million compared to the third quarter of 2009 and increased $2.0 million compared to the first nine months of 2009. The increase in 2010 was due to two large write downs and assets acquired from Peoples First.

Other expense increased $1.5 million compared to the same quarter a year ago and was up $4.1 million compared to the first nine months of 2009 mostly because of Peoples First valuation adjustments and interest and investment amortization on new market tax credits.

The following table presents the components of noninterest expense for the three and nine months ended September 30, 2010 and 2009.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010      2009      2010      2009  
     (In thousands)  

Employee compensation

   $ 28,515       $ 22,688       $ 83,285       $ 68,926   

Employee benefits

     7,375         6,425         22,751         19,664   
                                   

Total personnel expense

     35,890         29,113         106,036         88,590   
                                   

Equipment and data processing expense

     7,974         7,057         25,861         21,513   

Net occupancy expense

     5,657         5,144         17,827         15,215   

Postage and communications

     3,103         2,313         8,326         6,239   

Ad valorem and franchise taxes

     707         780         2,736         2,313   

Legal and professional services

     3,698         2,749         11,703         7,866   

Stationery and supplies

     467         490         1,824         1,398   

Amortization of intangible assets

     656         354         2,078         1,064   

Advertising

     2,269         1,301         5,807         3,729   

Deposit insurance and regulatory fees

     2,969         2,335         8,507         10,279   

Training expenses

     99         116         432         295   

Other real estate owned expense, net

     147         307         2,856         885   

Insurance expense

     517         492         1,506         1,400   

Other fees

     868         913         2,746         2,909   

Non loan charge-offs

     26         729         539         953   

Other expense

     3,013         1,556         9,218         5,165   
                                   

Total noninterest expense

   $ 68,060       $ 55,749       $ 208,002       $ 169,813   
                                   

 

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Income Taxes

For the nine months ended September 30, 2010 and 2009, the effective income tax rates were approximately 13% and 19%, respectively. Because of the reduced level of pretax income in 2010, the tax exempt interest income and the utilization of tax credits had a significant impact on the effective tax rate. The source of the tax credits for 2010 and 2009 resulted from investments in New Market Tax Credits, Qualified Bond Credits and Work Opportunity Tax Credits.

Selected Financial Data

The following tables contain selected financial data comparing our consolidated results of operations for the three and nine months ended September 30, 2010 and 2009.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2010      2009      2010      2009  
     (In thousands, except per share data)  

Per Common Share Data

           

Earnings per share:

           

Basic

   $ 0.40       $ 0.48       $ 0.95       $ 1.35   

Diluted

   $ 0.40       $ 0.47       $ 0.94       $ 1.34   

Cash dividends per share

   $ 0.24       $ 0.24       $ 0.72       $ 0.72   

Book value per share (period-end)

   $ 23.48       $ 20.54       $ 23.48       $ 20.54   

Weighted average number of shares:

           

Basic

     36,880         31,857         36,864         31,828   

Diluted (1)

     36,994         32,058         37,052         32,003   

Period-end number of shares

     36,883         31,877         36,883         31,877   

Market data:

           

High price

   $ 35.40       $ 42.38       $ 45.86       $ 45.56   

Low price

   $ 26.82       $ 29.90       $ 26.82       $ 22.51   

Period-end closing price

   $ 30.07       $ 37.57       $ 30.07       $ 37.57   

Trading volume (2)

     14,318         11,676         36,388         46,790   

 

(1)

There were no anti-dilutive share-based incentives outstanding for the three and nine months ended September 30, 2010 and September 30, 2009.

(2)

Trading volume is based on the total volume as determined by NASDAQ on the last day of the quarter.

 

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Table of Contents

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  
     (dollar amounts in thousands)  

Performance Ratios

        

Return on average assets

     0.70     0.87     0.55     0.81

Return on average common equity

     6.75     9.38     5.45     9.06

Earning asset yield (tax equivalent (“TE”))

     4.87     5.26     5.03     5.26

Total cost of funds

     1.02     1.39     1.21     1.54

Net interest margin (TE)

     3.85     3.86     3.82     3.72

Common equity (period-end) as a percent of total assets (period-end)

     10.51     9.62     10.51     9.62

Leverage ratio (period-end) (a)

     9.32     8.33     9.32     8.33

FTE headcount

     2,235        1,903        2,235        1,903   

Asset Quality Information

        

Non-accrual loans

   $ 132,834      $ 35,558      $ 132,834      $ 35,558   

Restructured loans (b)

     10,740        —          10,740        —     

Foreclosed assets

     31,879        9,775        31,879        9,775   
                                

Total non-performing assets

   $ 175,453      $ 45,333      $ 175,453      $ 45,333   
                                

Non-performing assets as a percent of loans and foreclosed assets

     3.55     1.06     3.55     1.06

Accruing loans 90 days past due (c)

   $ 7,292      $ 7,766      $ 7,292      $ 7,766   

Accruing loans 90 days past due as a percent of loans

     0.15     0.18     0.15     0.18

Non-performing assets + accruing loans 90 days past due to loans and foreclosed assets

     3.70     1.25     3.70     1.25

Net charge-offs

   $ 13,754      $ 13,495      $ 40,296      $ 36,631   

Net charge-offs as a percent of average loans

     1.10     1.24     1.09     1.14

Allowance for loan losses

   $ 79,725      $ 63,850      $ 79,725      $ 63,850   

Allowance for loan losses as a percent of period-end loans

     1.62     1.50     1.62     1.50

Allowance for loan losses to NPAs + accruing loans

        

90 days past due

     43.63     120.25     43.63     120.25

Provision for loan losses

   $ 16,258      $ 13,495      $ 54,601      $ 38,756   

Average Balance Sheet

        

Total loans

   $ 4,975,934      $ 4,301,651      $ 5,024,025      $ 4,288,186   

Securities

     1,532,293        1,477,197        1,583,716        1,568,400   

Short-term investments

     685,873        486,035        728,748        496,413   
                                

Earning assets

     7,194,100        6,264,883        7,336,489        6,352,999   

Allowance for loan losses

     (78,232     (63,850     (70,812     (63,075

Other assets

     1,248,792        776,234        1,243,465        771,574   
                                

Total assets

   $ 8,364,660      $ 6,977,267      $ 8,509,142      $ 7,061,498   
                                

Noninterest bearing deposits

   $ 1,078,227      $ 931,188      $ 1,055,846      $ 933,412   

Interest bearing transaction deposits

     1,955,635        1,459,377        1,924,032        1,473,179   

Interest bearing public fund deposits

     1,121,330        1,223,272        1,189,473        1,365,265   

Time deposits

     2,681,434        1,946,975        2,813,536        1,952,805   
                                

Total interest bearing deposits

     5,758,399        4,629,624        5,927,041        4,791,249   
                                

Total deposits

     6,836,626        5,560,812        6,982,887        5,724,661   

Other borrowed funds

     526,674        655,556        532,536        589,025   

Other liabilities

     128,424        117,326        131,250        113,108   

Common stockholders’ equity

     872,936        643,573        862,469        634,704   
                                

Total liabilities & common stockholders’ equity

   $ 8,364,660      $ 6,977,267      $ 8,509,142      $ 7,061,498   
                                

 

(a)

Calculated as Tier 1 capital divided by average total assets. Tier 1 capital is total equity less unrealized gain/loss on AFS securities, unfunded pension liability, unrecognized pension gain/loss, net goodwill and core deposit and 10% net mortgage servicing rights. Average total assets is reduced by net goodwill and core deposits and 10% of net mortgage servicing rights.

(b)

Included in restructured loans are $9.1 million in non-accrual loans.

(c)

Accruing loans past due 90 days or more do not include purchased impaired loans which were written down to their fair value upon acquisition and accrete interest income over the remaining life of the loan.

 

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                   September 30,  
                   2010     2009  
                   (dollar amounts in thousands)  

Period-end Balance Sheet

          

Commercial/real estate loans

         $ 3,068,415      $ 2,740,722   

Mortgage loans

           693,862        402,930   

Direct consumer loans

           721,513        598,291   

Indirect consumer loans

           322,501        400,459   

Finance company loans

           101,406        109,794   
                      

Total loans

           4,907,697        4,252,196   

Loans held for sale

           54,201        33,869   

Securities

           1,619,869        1,499,889   

Short-term investments

           575,506        375,887   
                      

Earning assets

           7,157,273        6,161,841   

Allowance for loan losses

           (79,725     (63,850

Other assets

           1,161,814        707,059   
                      

Total assets

         $ 8,239,362      $ 6,805,050   
                      

Noninterest bearing deposits

         $ 1,092,452      $ 912,092   

Interest bearing transaction deposits

           1,936,146        1,453,032   

Interest bearing public funds deposits

           1,120,559        1,108,164   

Time deposits

           2,559,641        1,946,867   
                      

Total interest bearing deposits

           5,616,346        4,508,063   
                      

Total deposits

           6,708,798        5,420,155   

Other borrowed funds

           539,394        614,751   

Other liabilities

           125,390        115,392   

Common stockholders’ equity

           865,780        654,752   
                      

Total liabilities & common stockholders’ equity

         $ 8,239,362      $ 6,805,050   
                      
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  
     (dollar amounts in thousands)  

Net Charge-Off Information

        

Net charge-offs:

        

Commercial/real estate loans

   $ 9,140      $ 10,176      $ 29,915      $ 27,236   

Mortgage loans

     1,674        177        2,851        553   

Direct consumer loans

     1,003        821        2,852        2,646   

Indirect consumer loans

     569        1,169        1,626        2,733   

Finance company loans

     1,368        1,152        3,682        3,463   
                                

Total net charge-offs

   $ 13,754      $ 13,495      $ 40,926      $ 36,631   
                                

Net charge-offs to average loans:

        

Commercial/real estate loans

     1.19     1.47     1.29     1.34

Mortgage loans

     0.88     0.16     0.51     0.17

Direct consumer loans

     0.54     0.54     0.52     0.59

Indirect consumer loans

     0.70     1.13     0.64     0.87

Finance company loans

     5.25     4.15     4.60     4.14

Total net charge-offs to average net loans

     1.10     1.24     1.09     1.14

 

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Table of Contents
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  
     (dollar amounts in thousands)  

Average Balance Sheet Composition

        

Percentage of earning assets/funding sources:

        

Loans

     69.17     68.66     68.48     67.50

Securities

     21.30     23.58     21.59     24.69

Short-term investments

     9.53     7.76     9.93     7.81
                                

Earning assets

     100.00     100.00     100.00     100.00
                                

Noninterest bearing deposits

     14.99     14.86     14.39     14.69

Interest bearing transaction deposits

     27.18     23.29     26.23     23.19

Interest bearing public funds deposits

     15.59     19.53     16.21     21.49

Time deposits

     37.27     31.08     38.35     30.74
                                

Total deposits

     95.03     88.76     95.18     90.11

Other borrowed funds

     7.32     10.47     7.26     9.27

Other net interest-free funding sources

     -2.35     0.77     -2.44     0.62
                                

Total funding sources

     100.00     100.00     100.00     100.00
                                

Loan mix:

        

Commercial/real estate loans

     61.42     63.68     61.65     63.16

Mortgage loans

     15.15     10.20     14.82     10.39

Direct consumer loans

     14.83     14.03     14.63     14.04

Indirect consumer loans

     6.52     9.53     6.77     9.80

Finance company loans

     2.08     2.56     2.13     2.61
                                

Total loans

     100.00     100.00     100.00     100.00
                                

Average dollars

        

Loans

   $ 4,975,934      $ 4,301,651      $ 5,024,025      $ 4,288,186   

Securities

     1,532,293        1,477,197        1,583,716        1,568,400   

Short-term investments

     685,873        486,035        728,748        496,413   
                                

Earning assets

   $ 7,194,100      $ 6,264,883      $ 7,336,489      $ 6,352,999   
                                

Noninterest bearing deposits

   $ 1,078,227      $ 931,188      $ 1,055,846      $ 933,412   

Interest bearing transaction deposits

     1,955,635        1,459,377        1,924,032        1,473,179   

Interest bearing public funds deposits

     1,121,330        1,223,272        1,189,473        1,365,265   

Time deposits

     2,681,434        1,946,975        2,813,536        1,952,805   
                                

Total deposits

     6,836,626        5,560,812        6,982,887        5,724,661   

Other borrowed funds

     526,674        655,556        532,536        589,025   

Other net interest-free funding sources

     (169,200     48,515        (178,934     39,313   
                                

Total funding sources

   $ 7,194,100      $ 6,264,883      $ 7,336,489      $ 6,352,999   
                                

Loans:

        

Commercial/real estate loans

   $ 3,056,578      $ 2,739,518      $ 3,097,429      $ 2,708,380   

Mortgage loans

     753,686        438,659        744,682        445,549   

Direct consumer loans

     738,036        603,394        734,902        601,926   

Indirect consumer loans

     324,337        410,035        340,057        420,404   

Finance company loans

     103,297        110,045        106,955        111,927   
                                

Total average loans

   $ 4,975,934      $ 4,301,651      $ 5,024,025      $ 4,288,186   
                                

 

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The following tables detail the components of our net interest spread and net interest margin.

 

     Three Months Ended September 30,     Three Months Ended September 30,  
     2010     2009  

(dollars in thousands)

   Interest     Volume      Rate     Interest      Volume      Rate  

Average earning assets

               

Commercial & real estate loans (TE)

   $ 40,557      $ 3,056,578         5.27   $ 36,909       $ 2,739,518         5.35

Mortgage loans

     10,150        753,686         5.39     6,334         438,659         5.78

Consumer loans

     20,927        1,165,670         7.12     20,086         1,123,474         7.09

Loan fees & late charges

     (280     —           0.00     224         —           0.00
                                       

Total loans (TE)

     71,354        4,975,934         5.68     63,553         4,301,651         5.87

US treasury securities

     18        11,282         0.62     60         11,007         2.16

US agency securities

     727        134,114         2.17     1,384         134,487         4.12

CMOs

     2,673        310,210         3.45     1,968         153,511         5.13

Mortgage backed securities

     10,109        870,489         4.65     12,278         983,394         4.99

Municipals (TE)

     2,808        187,962         5.98     2,295         169,893         5.40

Other securities

     213        18,236         4.66     349         24,905         5.60
                                       

Total securities (TE)

     16,548        1,532,293         4.32     18,334         1,477,197         4.96

Total short-term investments

     382        685,873         0.22     870         486,035         0.71

Average earning assets yield (TE)

   $ 88,284      $ 7,194,100         4.87   $ 82,757       $ 6,264,883         5.26

Interest bearing liabilities

               

Interest bearing transaction deposits

   $ 2,022      $ 1,955,635         0.41   $ 1,605       $ 1,459,377         0.44

Time deposits

     12,121        2,681,434         1.79     13,543         1,946,975         2.76

Public funds

     2,004        1,121,330         0.71     4,057         1,223,272         1.32
                                       

Total interest bearing deposits

     16,147        5,758,399         1.11     19,205         4,629,624         1.65

Total borrowings

     2,429        526,674         1.83     2,799         655,556         1.69

Total interest bearing liability cost

   $ 18,576      $ 6,285,073         1.17   $ 22,004       $ 5,285,180         1.65

Net interest-free funding sources

       909,027              979,703      

Total Cost of Funds

   $ 18,576      $ 7,194,100         1.02   $ 22,004       $ 6,264,883         1.39

Net Interest Spread (TE)

   $ 69,708           3.70   $ 60,753            3.60

Net Interest Margin (TE)

   $ 69,708      $ 7,194,100         3.85   $ 60,753       $ 6,264,883         3.86

 

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Table of Contents

 

     Nine Months Ended September 30,     Nine Months Ended September 30,  
     2010     2009  

(dollars in thousands)

   Interest      Volume      Rate     Interest      Volume      Rate  

Average earning assets

                

Commercial & real estate loans (TE)

   $ 122,887       $ 3,097,429         5.30   $ 106,946       $ 2,708,380         5.28

Mortgage loans

     34,248         744,682         6.13     19,200         445,549         5.75

Consumer loans

     64,300         1,181,914         7.27     60,720         1,134,257         7.16

Loan fees & late charges

     207         —           0.00     757         —           0.00
                                        

Total loans (TE)

     221,642         5,024,025         5.89     187,623         4,288,186         5.85

US treasury securities

     58         11,652         0.67     156         11,155         1.88

US agency securities

     3,521         167,816         2.80     5,399         176,971         4.07

CMOs

     7,531         252,699         3.97     6,387         169,443         5.03

Mortgage backed securities

     33,411         944,552         4.72     38,699         1,024,012         5.04

Municipals (TE)

     8,232         190,432         5.76     6,949         161,678         5.73

Other securities

     652         16,564         5.25     1,051         25,141         5.57
                                        

Total securities (TE)

     53,405         1,583,715         4.50     58,641         1,568,400         4.99

Total short-term investments

     1,421         728,748         0.26     3,939         496,413         1.06

Average earning assets yield (TE)

   $ 276,468       $ 7,336,488         5.03   $ 250,203       $ 6,352,999         5.26

Interest bearing liabilities

                

Interest bearing transaction deposits

   $ 7,124       $ 1,924,032         0.50   $ 5,657       $ 1,473,179         0.51

Time deposits

     43,968         2,813,536         2.09     43,772         1,952,805         3.00

Public funds

     7,739         1,189,473         0.87     15,833         1,365,265         1.55
                                        

Total interest bearing deposits

     58,831         5,927,041         1.33     65,262         4,791,249         1.82

Total borrowings

     7,413         532,536         1.86     8,158         589,025         1.85

Total interest bearing liability cost

   $ 66,244       $ 6,459,577         1.37   $ 73,420       $ 5,380,274         1.82

Net interest-free funding sources

        876,912              972,725      

Total Cost of Funds

   $ 66,244       $ 7,336,489         1.21   $ 73,420       $ 6,352,999         1.54

Net Interest Spread (TE)

   $ 210,224            3.66   $ 176,783            3.44

Net Interest Margin (TE)

   $ 210,224       $ 7,336,489         3.82   $ 176,783       $ 6,352,999         3.72

LIQUIDITY

Liquidity management encompasses our ability to ensure that funds are available to meet the cash flow requirements of depositors and borrowers, while also ensuring that we have adequate cash flow to meet our various needs, including operating, strategic and capital. Our principal source of liquidity is dividends from our subsidiary banks.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities of investment securities and occasional sales of various assets. Short-term investments such as federal funds sold, securities purchased under agreements to resell and maturing interest-bearing deposits with other banks are additional sources of funding.

The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and non-interest-bearing deposit accounts. Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings are additional sources of liquidity and represent our incremental borrowing capacity. Our short-term borrowing capacity includes an approved line of credit with the Federal Home Loan Bank of $828.4 million and borrowing capacity at the Federal Reserve’s Discount Window in excess of $135.6 million. We have FHLB advances of $10 million due September 12, 2011 at a fixed rate 3.455%.

 

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The following liquidity ratios at September 30, 2010 and December 31, 2009 compare certain assets and liabilities to total deposits or total assets:

 

     September 30,
2010
    December 31,
2009
 

Total securities to total deposits

     24.15     22.39

Total loans (net of unearned income) to total deposits

     73.15     71.07

Interest-earning assets to total assets

     86.87     86.91

Interest-bearing deposits to total deposits

     83.72     85.08

CONTRACTUAL OBLIGATIONS

Payments due from us under specified long-term and certain other binding contractual obligations were scheduled in our annual report on Form 10-K for the year ended December 31, 2009. The most significant obligations, other than obligations under deposit contracts and short-term borrowings, were for operating leases for banking facilities. There have been no material changes since year end.

CAPITAL RESOURCES

We continue to be well capitalized. The ratios as of September 30, 2010 and December 31, 2009 are as follows:

 

     September 30,
2010
    December 31,
2009
 

Common equity (period-end) as a percent of total assets (period-end)

     10.51     9.63

Regulatory ratios:

    

Total capital to risk-weighted assets (1)

     16.28     13.04

Tier 1 capital to risk-weighted assets (2)

     15.02     11.99

Leverage capital to average total assets (3)

     9.32     10.60

 

(1)

Total capital consists of equity capital less intangible assets plus a limited amount of allowance for loan losses. Risk-weighted assets represent the assigned risk portion of all on and off-balance-sheet assets. Based on Federal Reserve Board guidelines, assets are assigned a risk factor percentage from 0% to 100%. A minimum ratio of total capital to risk-weighted assets of 8% is required.

(2)

Tier 1 capital consists of equity capital less intangible assets. A minimum ratio of tier 1 capital to risk-weighted assets of 4% is required.

(3)

Leverage capital consists of equity capital less goodwill and core deposit intangibles. Regulations require a minimum 3% leverage capital ratio for an entity to be considered adequately capitalized.

 

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BALANCE SHEET ANALYSIS

Goodwill

Goodwill represents costs in excess of the fair value of net assets acquired in connection with purchase business combinations. In accordance with FASB authoritative guidance, goodwill is not amortized but tested for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. Management reviews goodwill for impairment based on our primary reporting segments. We analyze goodwill using market capitalization to book value comparison. The last test was conducted as of September 30, 2009. No impairment charges were recognized as of September 30, 2010. The carrying amount of goodwill was $61.6 million as of September 30, 2010 and $62.3 million as of December 31, 2009.

Earnings Assets

Earning assets serve as the primary revenue streams for us and are comprised of securities, loans, federal funds sold, and other short-term investments. At September 30, 2010, average earning assets were $7.3 billion, or 86.2% of total assets, compared with $6.4 billion or 90.0% of total assets at September 30, 2009 and at December 31, 2009. The $1.0 billion, or 15.5%, increase from prior year quarter resulted mostly from an increase in the loan portfolios due to the acquisition of Peoples First in the fourth quarter of 2009.

Securities

Our investment in securities was $1.6 billion at September 30, 2010 and at December 31, 2009. The vast majority of securities in our portfolio are U.S. Treasury and U.S. government agency securities and mortgage-backed securities issued or guaranteed by U.S. government agencies. We also maintain portfolios of securities consisting of CMOs and tax-exempt obligations of states and political subdivisions. The portfolios are designed to enhance liquidity while providing acceptable rates of return. Therefore, we invest only in high quality securities of investment grade quality and with a target duration, for the overall portfolio, generally between two to five years. Our policies limit investments to securities having a rating of no less than “Baa”, or its equivalent by a Nationally Recognized Statistical Rating Agency, except for certain obligations of Mississippi, Louisiana, Florida or Alabama counties, parishes and municipalities.

Loans

We held $4.9 billion in loans at September 30, 2010 and $5.1 billion at December 31, 2009. Our primary lending focus is to provide commercial, consumer, commercial leasing and real estate loans to consumers and to small and middle market businesses in their respective market areas. Each loan file is reviewed by the Bank’s loan operations quality assurance function, a component of its loan review system, to ensure proper documentation and asset quality. At September 30, 2010, our average total loans were $5.0 billion, compared to $4.3 billion at September 30, 2009 and at December 31, 2009. The $0.7 million, or 17.2%, increase from prior year quarter resulted from our acquisition of Peoples First in the fourth quarter of 2009. Commercial and real estate loans comprised 61.7% of the average loan portfolio at September 30, 2010 compared to 63.2% at September 30, 2009 and at December 31, 2009. Included in this category are commercial real estate loans, which are secured by properties, used in commercial or industrial operations.

Other Earning Assets

Federal funds sold, interest-bearing deposits in banks, and other short-term investments averaged $728.7 million at September 30, 2010, compared to $497.0 million at December 31, 2009 and compared to $496.4 million at September 30, 2009. The increase of $232.3 million, or 46.8%, from prior year quarter was caused by an increase of $505.7 million in interest-bearing deposits in banks that was offset by a decrease of $267.9 million in other short-term investments and a decrease in fed funds sold of $5.4 million. We utilize these products as a short-term investment alternative whenever we have excess liquidity.

 

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Interest Bearing Liabilities

Interest bearing liabilities include our interest bearing deposits as well as borrowings. Deposits represent our primary funding source. We continue our focus on multiple account, core deposit relationships and strategic placement of time deposit campaigns to stimulate overall deposit growth. Borrowings consist primarily of sales of securities under repurchase agreements.

Deposits

Total deposits were $6.7 billion at September 30, 2010 and $7.2 billion at December 31, 2009. Average interest bearing deposits at September 30, 2010 were $5.9 billion compared to $4.8 billion at September 30, 2009 and December 31, 2009. The increase of $1.1 billion, or 23.7%, over September 30, 2009 was primarily attributable to our Peoples First acquisition in the fourth quarter of 2009. We continue to see positive results in retaining deposits for our acquired Peoples First deposit relationships. We have several programs designed to attract depository accounts offered to consumers and to small and middle market businesses at interest rates generally consistent with market conditions. We traditionally price our deposits to position competitively within the local market. Deposit flows are controlled primarily through pricing, and to a certain extent, through promotional activities.

Borrowings

Our borrowings consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances and other borrowings. Total borrowings at September 30, 2010 were $527.1 million compared to $516.2 million at December 31, 2009. The increase of $10.9 million, or 2.1%, was due to a $28.8 million increase in securities sold under agreements to repurchase and a $2.9 million increase in federal funds purchased offset by a $20.6 million decrease in FHLB borrowings and a $0.2 million decrease in long term notes.

OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

In the normal course of business, we enter into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of our customers. Such instruments are not reflected in the accompanying condensed consolidated financial statements until they are funded and involve, to varying degrees, elements of credit risk not reflected in the condensed consolidated balance sheets. The contract amounts of these instruments reflect our exposure to credit loss in the event of non-performance by the other party on whose behalf the instrument has been issued. We undertake the same credit evaluation in making commitments and conditional obligations as we do for on-balance-sheet instruments and may require collateral or other credit support for off-balance-sheet financial instruments.

At September 30, 2010, we had $867.1 million in unused loan commitments outstanding, of which approximately $712.6 million were at variable rates, with the remainder at fixed rates. A commitment to extend credit is an agreement to lend to a customer as long as the conditions established in the agreement have been satisfied. A commitment to extend credit generally has a fixed expiration date or other termination clauses and may require payment of a fee by the borrower. Since commitments often expire without being fully drawn, the total commitment amounts do not necessarily represent our future cash requirements. We continually evaluate each customer’s credit worthiness on a case-by-case basis. Occasionally, a credit evaluation of a customer requesting a commitment to extend credit results in our obtaining collateral to support the obligation.

 

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Letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. The credit risk involved in issuing a letter of credit is essentially the same as that involved in extending a loan. At September 30, 2010, we had $101.0 million in letters of credit issued and outstanding.

The following table shows the commitments to extend credit and letters of credit at September 30, 2010 according to expiration date.

 

     Expiration Date  
     Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 
     (dollars in thousands)  

Commitments to extend credit

   $ 867,071       $ 511,590       $ 60,387       $ 59,051       $ 236,043   

Letters of credit

     101,012         38,443         44,324         18,245         —     
                                            

Total

   $ 968,083       $ 550,033       $ 104,711       $ 77,296       $ 236,043   
                                            

Our liability associated with letters of credit is not material to our condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. The accounting principles we follow and the methods for applying these principles conform with accounting principles generally accepted in the United States of America and with general practices followed by the banking industry which requires management to make estimates and assumptions about future events. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. On an ongoing basis, we evaluate our estimates, including those related to the allowance for loan losses, intangible assets and goodwill, income taxes, pension and postretirement benefit plans and contingent liabilities. These estimates and assumptions are based on our best estimates and judgments. We evaluate estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets, rising unemployment levels and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. Allowance for loan losses, deferred income taxes, and goodwill are potentially subject to material changes in the near term. Actual results could differ significantly from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 11 to our Condensed Consolidated Financial Statements included elsewhere in this report.

FORWARD LOOKING STATEMENTS

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This Act provides a safe harbor for such disclosures that protects the companies from unwarranted litigation if the actual results are different from management expectations. This report contains forward-looking statements and reflects management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties that could cause our actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our net income is dependent, in part, on our net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. Interest rate risk sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. In an attempt to manage our exposure to changes in interest rates, management monitors interest rate risk and administers an interest rate risk management policy designed to produce a relatively stable net interest margin in periods of interest rate fluctuations.

Notwithstanding our interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income and the fair value of our investment securities. As of September 30, 2010, the effective duration of the securities portfolio was 2.1 years. A rate increase (aged, over 1 year) of 100 basis points would move the effective duration to 3.2 years, while a reduction in rates of 100 basis points would result in an effective duration of 1.0 years.

In adjusting our asset/liability position, the Board and management attempt to manage our interest rate risk while enhancing net interest margins. This measurement is done primarily by running net interest income simulations. The net interest income simulations run at September 30, 2010 indicate that we are slightly asset sensitive as compared to the stable rate environment. Exposure to instantaneous changes in interest rate risk for the current quarter is presented in the following table.

 

Net Interest Income (te) at Risk

 

Change in
interest rate
(basis point)

  

Estimated
increase (decrease)
in net interest income

 

-100

     3.10

Stable

     0.00

+100

     -1.51

The foregoing disclosures related to our market risk should be read in conjunction with our audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2009 included in our 2009 Annual Report on Form 10-K.

 

Item 4. Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officers and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to timely alert them to material information relating to us (including our consolidated subsidiaries) required to be included in our Exchange Act filings.

Our management, including the Chief Executive Officers and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the three month period ended September 30, 2010, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1A. Risk Factors

We are continuing to monitor the oil spill developments in the Gulf of Mexico. We are assessing how this situation may impact our customers and the areas in which they operate. In the second quarter of 2010, we established a specific reserve for potential losses of $5.2 million. Still, much of the ultimate impact related this to event is unknown. Much work remains to be done in terms of the environmental clean-up and business recovery from this event. We do expect there to be a significant and potentially lasting impact to the coastal regions in the four U.S. states (Louisiana, Mississippi, Alabama, and Florida) that comprise our footprint.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States, establishes the new federal Bureau of Consumer Financial Protection (the “BCFP”), and will require the BCFP and other federal agencies to implement many new rules. At this time, it is difficult to predict the extent to which the Dodd-Frank Act or the resulting regulations will impact our business. Among other requirements, the Dodd-Frank Act includes provisions affecting corporate governance and executive compensation at all publicly-traded companies; provisions that would broaden the base for FDIC insurance assessments and permanently increase FDIC deposit insurance to $250,000; and new restrictions on how mortgage brokers and loan originators may be compensated. These provisions, or any other aspects of current proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities or change certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to our operations in order to comply, and could therefore also materially adversely affect our business, financial condition, and results of operations.

There have been no other material changes from the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2009. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

There were no purchases made by the issuer or any affiliated purchaser of the issuer’s equity securities for the nine months ended September 30, 2010.

 

Item 4. Reserved.

 

Item 5. Other Information.

None

 

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Item 6. Exhibits.

(a) Exhibits:

 

Exhibit
Number

  

Description

31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101         XBRL Interactive Data.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Hancock Holding Company
By:   /s/    CARL J. CHANEY        
  Carl J. Chaney
  President & Chief Executive Officer
  /s/    JOHN M. HAIRSTON        
  John M. Hairston
  Chief Executive Officer & Chief Operating Officer
  /s/    MICHAEL M. ACHARY        
  Michael M. Achary
  Chief Financial Officer
Date: November 4, 2010

 

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Index to Exhibits

 

Exhibit
Number

  

Description

31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101         XBRL Interactive Data.