UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________





FORM 10-Q

___________________________________________________________



(Mark one)



For the quarterly period ended March 31, 2016

OR





For the transition period from                      to                       

Commission file number: 001-36827



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 No.)

One Hancock Plaza, 2510 14 th   Street, Gulfport, Mississippi	39501
(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     ☐   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     ☐   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):



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      ☐   Yes     ☒   No

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

77,514,296 common shares were outstanding as of May 1 , 201 6 .  





 



 

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Ha ncock Holding Company

Index



 



 

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Part I. Financial Information

Item 1 . Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets







		March 31,			December 31,
(in thousands, except share data)		2016			2015
ASSETS			unaudited
Cash and due from banks		$	291,099		$	303,874
Interest-bearing bank deposits			151,193			564,671
Federal funds sold			358			884
Securities available for sale, at fair value (amortized cost of $2,116,271 and $2,086,745 )			2,149,466			2,093,404
Securities held to maturity (fair value of $2,566,799 and $2,375,851 )			2,518,371			2,370,388
Loans held for sale			24,001			20,434
Loans			15,978,124			15,703,314
Less: allowance for loan losses			(217,794)			(181,179)
Loans, net			15,760,330			15,522,135
Property and equipment, net of accumulated depreciation of $216,418 and $209,763			371,319			377,015
Prepaid expenses			20,152			17,560
Other real estate, net			23,191			26,256
Accrued interest receivable			57,448			54,068
Goodwill			621,193			621,193
Other intangible assets, net			102,414			107,538
Life insurance contracts			435,494			434,550
FDIC loss share receivable			25,828			29,868
Deferred tax asset, net			72,131			75,830
Other assets			185,382			213,937
Total assets		$	22,809,370		$	22,833,605
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing		$	7,108,598		$	7,276,127
Interest-bearing			11,547,552			11,072,785
Total deposits			18,656,150			18,348,912
Short-term borrowings			1,100,787			1,423,644
Long-term debt			471,245			490,145
Accrued interest payable			8,455			6,609
Other liabilities			151,693			151,152
Total liabilities			20,388,330			20,420,462
Stockholders' equity
Common Stock - $3.33 par value per share; 350,000,000 shares authorized, 77,507,960 and 77,496,429 outstanding			258,102			258,063
Capital surplus			1,688,482			1,684,101
Treasury shares at cost - 9,307,551 and 9,319,082 shares			(227,130)			(226,370)
Retained earnings			762,652			777,944
Accumulated other comprehensive loss, net			(61,066)			(80,595)
Total stockholders' equity			2,421,040			2,413,143
Total liabilities and stockholders' equity		$	22,809,370		$	22,833,605



See notes to unaudited consolidated financial statements.

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Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)







		Three Months Ended
		March 31,

(in thousands, except per share data)		2016			2015
Interest income:
Loans, including fees		$	154,113		$	146,967
Loans held for sale			159			96
Securities-taxable			23,957			20,790
Securities-tax exempt			1,802			880
Short-term investments			610			354
Total interest income			180,641			169,087
Interest expense:
Deposits			11,733			7,126
Short-term borrowings			993			172
Long-term debt			5,079			3,631
Total interest expense			17,805			10,929
Net interest income			162,836			158,158
Provision for loan losses			60,036			6,154
Net interest income after provision for loan losses			102,800			152,004
Noninterest income:
Service charges on deposit accounts			18,383			17,315
Trust fees			11,224			11,200
Bank card and ATM fees			11,348			11,183
Investment and annuity fees			4,933			5,050
Secondary mortgage market operations			2,912			2,664
Insurance commissions and fees			1,307			1,754
Amortization of FDIC loss share receivable			(1,613)			(1,197)
Other income			9,692			8,577
Total noninterest income			58,186			56,546
Noninterest expense:
Compensation expense			73,001			65,017
Employee benefits			15,714			15,634
Personnel expense			88,715			80,651
Net occupancy expense			10,356			11,177
Equipment expense			3,774			3,935
Data processing expense			14,207			13,556
Professional services expense			7,621			15,370
Amortization of intangibles			5,124			6,318
Telecommunications and postage			3,361			3,651
Deposit insurance and regulatory fees			5,397			3,595
Other real estate expense, net			768			456
Other expense			16,709			14,806
Total noninterest expense			156,032			153,515
Income before income taxes			4,954			55,035
Income taxes			1,115			14,876
Net income		$	3,839		$	40,159
Earnings per common share-basic		$	0.05		$	0.49
Earnings per common share-diluted		$	0.05		$	0.49
Dividends paid per share		$	0.24		$	0.24
Weighted average shares outstanding-basic			77,501			79,496
Weighted average shares outstanding-diluted			77,672			79,661



See notes to unaudited consolidated financial statements.

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Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)







		Three Months Ended
		March 31,
(in thousands)		2016			2015
Net income		$	3,839		$	40,159
Other comprehensive income:
Net change in unrealized gain			28,972			5,413
Reclassification adjustment for net losses realized and included in earnings			1,091			605
Amortization of unrealized net gain on securities transferred to held to maturity			798			647
Other comprehensive income before income taxes			30,861			6,665
Income tax			11,332			2,360
Other comprehensive income net of income taxes			19,529			4,305
Comprehensive income		$	23,368		$	44,464



See notes to unaudited consolidated financial statements.

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Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)







													Accumulated
													Other
													Comprehensive
		Common Stock					Capital			Retained			Income (Loss),			Treasury
(in thousands, except share data)		Shares		Amount			Surplus			Earnings			net			Stock			Total
Balance, December 31, 2014		80,426,485		$	267,820		$	1,689,291		$	723,496		$	(50,074)		$	(158,131)		$	2,472,402
Net income		—			—			—			40,159			—			—			40,159
Other comprehensive income		—			—			—			—			4,305			—			4,305
Comprehensive income		—			—			—			40,159			4,305			—			44,464
Cash dividends declared ( $0.24 per common share)		—			—			—			(19,524)			—			—			(19,524)
Common stock activity, long-term  incentive plan		23,242			78			12,086			—			—			(9,138)			3,026
Purchase of common stock under stock buyback program		(2,563,607)			(8,537)			—			—			—			(66,733)			(75,270)
Balance, March 31, 2015		77,886,120		$	259,361		$	1,701,377		$	744,131		$	(45,769)		$	(234,002)		$	2,425,098

Balance, December 31, 2015		77,496,429		$	258,063		$	1,684,101		$	777,944		$	(80,595)		$	(226,370)		$	2,413,143
Net income		—			—			—			3,839			—			—			3,839
Other comprehensive income		—			—			—			—			19,529			—			19,529
Comprehensive income		—			—			—			3,839			19,529			—			23,368
Cash dividends declared ( $0.24 per common share)		—			—			—			(19,131)			—			—			(19,131)
Common stock activity, long-term incentive plan		11,531			39			4,381			—			—			(760)			3,660
Balance, March 31, 2016		77,507,960		$	258,102		$	1,688,482		$	762,652		$	(61,066)		$	(227,130)		$	2,421,040



See notes to unaudited consolidated financial statements.

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Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)







		Three Months Ended
		March 31,
(in thousands)		2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	3,839		$	40,159
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			7,199			7,218
Provision for loan losses			60,036			6,154
Loss (gain) on other real estate owned			416			(248)
Deferred tax (benefit) expense			(8,041)			9,252
Increase in cash surrender value of life insurance contracts			(1,208)			(2,596)
Gain on disposal of other assets			(2,111)			(340)
Net (increase) decrease in loans held for sale			(3,308)			356
Net amortization of securities premium/discount			5,799			4,223
Amortization of intangible assets			5,124			6,318
Amortization of FDIC indemnification asset			1,613			1,197
Stock-based compensation expense			4,050			3,071
Decrease in interest payable and other liabilities			(8,565)			(8,577)
Net payments (to) from FDIC for loss share claims			(302)			7,580
Decrease (increase) in FDIC loss share receivable			557			(1,188)
Decrease (increase) in other assets			27,488			(6,826)
Other, net			143			(447)
Net cash provided by operating activities			92,729			65,306
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities			47,774			9,221
Proceeds from maturities of securities available for sale			86,966			468,358
Purchases of securities available for sale			(167,419)			(638,861)
Proceeds from maturities of securities held to maturity			86,632			88,381
Purchases of securities held to maturity			(236,117)			(207,849)
Net decrease in interest-bearing bank deposits			413,478			286,551
Net decrease in federal funds sold			526			600
Proceeds from sales of loans			61,878			—
Net increase in loans			(351,202)			(36,137)
Purchases of property and equipment			(1,550)			(8,609)
Proceeds from sales of other real estate			4,316			21,969
Other, net			3,567			(4,582)
Net cash used in investing activities			(51,151)			(20,958)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits			307,254			287,654
Net decrease in short-term borrowings			(322,857)			(396,323)
Repayments of long-term debt			(19,551)			(8,800)
Net proceeds from issuance of long-term debt			66			145,196
Dividends paid			(19,131)			(19,524)
Purchase of common stock under stock buyback program			—			(75,270)
Other, net			(134)			—
Net cash provided by financing activities			(54,353)			(67,067)
NET DECREASE IN CASH AND DUE FROM BANKS			(12,775)			(22,719)
CASH AND DUE FROM BANKS, BEGINNING			303,874			356,455
CASH AND DUE FROM BANKS, ENDING		$	291,099		$	333,736
SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans		$	1,662		$	4,161



See notes to unaudited consolidated financial statements.



 

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1.  Basis of Presentation

The consolidated financial statements include the accounts of Hancock Holding Company and all other entities in which it has a controlling interest (the “Company”). The financial statements include all adjustments that are, in the opinion of management, necessary to present fairly the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented.  Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) 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 Annual Report on Form 10-K for the year ended December 31, 2015.  Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

Certain prior period amounts have been reclassified to conform to the current period presentation.     Effective January 1, 2016, the C ompany retrospectively adopted accounting guidance intended to simplify the presentation of debt issuance costs by requiring that costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.  Historically, debt issuance costs were reported in the “Other Assets” line items in the Consolidated Balance Sheets and Statements of Cash Flows.  All historical periods have been restated to reflect the revised presentation and new required disclosures.  The adoption of this guidance did not have a material impact on the Company’s financial condition or operating results.

Use of Estimates

The accounting principles the Company follows and the methods for applying these principles conform with GAAP and with general practices followed by the banking industry.   These accounting principles require management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and the accompanying notes.  Actual results could differ from those estimates.    

Critical Accounting Policies and Estimates

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2015.    

 

2.  Securities

The amortized cost and fair value of securities classified as available for sale and held to maturity follow.







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The following table presents the amortized cost and fair value of debt securities at March 31, 2016 by contractual maturity.  Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.





The Company held no securities classified as trading at March 31, 2016 or December 31, 2015. 

The details for securities classified as available for sale with unrealized losses for the periods indicated follow.  







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The details for securities classified as held to maturity with unrealized losses for the periods indicated follow.  









The unrealized losses primarily relate to changes in market rates on fixed-rate debt securities since the respective purchase dates.  In all cases, the indicated impairment on these debt securities would be recovered no later than the security’s maturity date or possibly earlier if the market price for the security increases with a reduction in the yield required by the market.  None of the unrealized losses relate to the marketability of the securities or the issuer’s ability to meet contractual obligations.  The Company believes it has adequate liquidity and, therefore, does not plan to and, more likely than not, will not be required to sell these securities before recovery of the indicated impairment.  Accordingly, the unrealized losses on these securities have been determined to be temporary.

Securities with carrying values totaling $3. 1 billion at March 31, 2016 and $3 . 5 billion at December 31, 2015 were pledged as collateral primarily to secure public deposits or securities sold under agreements to repurchase.

 

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3.  Loans and Allowance for Loan Losses

Loans, net of unearned income, consisted of the following.







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The following briefly describes the distinction among originated, acquired and FDIC acquired loans and certain significant accounting policies relevant to each category.

Originated loans

Loans reported as “originated” include both loans and leases originated for investment and acquired-performing loans where the discount (premium) has been fully accreted (amortized).  Originated loans are reported at the principal balance outstanding, net of unearned income.  Interest on loans and accretion of unearned income, including deferred loan fees, are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recognized in income as earned.

The accrual of interest on an originated loan is discontinued when, in management’s opinion, it is probable that the borrower will be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. When accrual of interest is discontinued on a loan, all unpaid accrued interest is reversed and payments subsequently received are applied first to recover principal. Interest income is recognized for payments received after contractual principal has been satisfied. Loans are returned to accrual status when all the principal and interest contractually due are brought current and future payment performance is reasonably assured. 

Acquired loans

Loans reported as “acquired” are those loans that were purchased in the 2011 Whitney Holding Corporation acquisition.  These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses.  At the time of the Whitney acquisition, the Whitney acquired loans were segregated between those considered to be performing (“acquired-performing”) and those with evidence of credit deterioration (“acquired-impaired”) based on such factors as past due status, nonaccrual status and credit risk ratings (rated substandard or worse).  The acquired loans were further segregated into loan pools designed to facilitate the development of expected cash flows to be used in estimating fair value for purchase accounting.  Acquired-performing loans are accounted for under ASC 310-20 and acquired-impaired loans are accounted for under ASC 310-30.

Acquired-performing loans were segregated into pools based on common risk characteristics such as loan type, credit risk ratings, and contractual interest rate and repayment terms.  The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, residential mortgage loans, and consumer loans, with further segregation within certain loan types as needed.  Expected cash flows, both principal and interest, from each pool were estimated based on key assumptions covering such factors as prepayments, default rates, and severity of loss given a default.  These assumptions were developed using both historical experience and the portfolio characteristics at acquisition as well as available market research.  The fair value for each acquired-performing pool was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

The difference at the acquisition date between the fair value and the contractual amounts due of an acquired-performing loan pool (the “fair value discount”) is accreted into income over the estimated life of the pool.  Acquired-performing loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The acquired-impaired loans were segregated into pools by identifying loans with common credit risk profiles and were based primarily on characteristics such as loan type and market area in which originated.  The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, and residential mortgage loans, with further segregation within certain loan types as needed. The acquired-impaired loans were further disaggregated by geographic region in recognition of the differences in general economic conditions affecting borrowers in certain states.  The fair value estimate for each pool of acquired-impaired loans was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

The excess of estimated cash flows expected to be collected from an acquired-impaired loan pool over the pool’s carrying value is referred to as the accretable yield and is recognized in interest income using an effective yield method over the expected life of the loan pool.  Each pool of acquired-impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.  Acquired-impaired loans in pools with an accretable yield and expected cash flows that are reasonably estimable are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting.  Acquired-impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings even if they would otherwise qualify for such treatment.

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FDIC acquired loans and the related loss share receivable

Loans reported as “FDIC acquired” are loans purchased in the 2009 acquisition of Peoples First Community Bank (“Peoples First”) that were covered by two loss share agreements between the FDIC and the Company.  These loans are accounted for as acquired-impaired loans as described above in the section on acquired loans.  The Company treated all loans for the Peoples First acquisition as impaired based on the significant amount of deteriorating and nonperforming loans, comprised mainly of adjustable rate mortgages and home equity loans, located in Florida. The loss share receivable is measured separately from the related covered loans as it is not contractually embedded in the loans and is not transferrable should the loans be sold.  The fair value of the loss share receivable at acquisition was estimated by discounting expected reimbursements for losses from the loans covered by the loss share agreements, including appropriate consideration of possible true-up payments to the FDIC at the expiration of the agreements.

The loss share receivable is reviewed and updated prospectively as loss estimates related to covered loan pools change.  Increases in expected reimbursements under the loss sharing agreement will lead to an increase in the loss share receivable.  A decrease in expected reimbursements is reflected first as a reversal of any previously recorded increase in the loss share receivable on the covered loan pools with the remainder reflected as an increase in the loss share receivable’s amortization rate.  The loss share receivable serves to offset the impact on provision due to impairments or impairment reversals that occur as a result of changes in loss estimates on the underlying covered loan pools.  The excess (or shortfall) of expected claims compared to the carrying value of the loss share receivable is accreted (amortized) into noninterest income over the shorter of the remaining life of the covered loan pool or the life of the loss share agreement.  The impact on operations of an increase in the loss share receivable’s amortization rate is associated with an increase in the accretable yield on the underlying loan pool.  The loss share receivable is reduced as cash is received from the FDIC related to losses incurred on covered assets.

The following schedule shows activity in the loss share receivable for the three   months ended March 31, 2016 and 201 5 .







The loss share agreement covering the non-single family FDIC acquired portfolio expired in December 2014.  The loss share agreement covering the single family portfolio expires in December 2019.



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The following schedule shows activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 and 2015, as well as the corresponding recorded investment in loans at the end of each period.







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The following table shows the composition of nonaccrual loans by portfolio segment and class.  Acquired-impaired and certain FDIC acquired loans are considered to be performing due to the application of the accretion method and are excluded from the table.  FDIC acquired loans accounted for using the cost recovery method do not have an accretable yield and are included below as nonaccrual loans.  Acquired-performing loans that have subsequently been placed on nonaccrual status are also included below.







Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $18.3 million and $8.8 million at March 31, 2016 and December 31, 2015, respectively.  Total TDRs, both accruing and nonaccruing, were $63.9 million as of March 31, 2016 and $13.1 million at December 31, 2015.

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The table below details TDRs that were modified during the three months ended March 31, 2016 and March 31, 2015 by portfolio segment.  The TDRs during the three months ended March 31, 2016 and 2015 were extended amortization, other modification of payment terms, or covenant violations.  All are individually evaluated for impairment.







No TDRs that subsequently defaulted within twelve months of modification were recorded in the three months ended March 31, 2016 or 2015. 

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The tables below present loans that are individually evaluated for impairment disaggregated by class at March 31, 2016 and December 31, 2015 .  Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate relationship balances of $1 million or more. 











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The tables below present the age analysis of past due loans at March 31, 2016 and December 31, 2015 .  FDIC acquired and acquired-impaired loans accounted for in pools with an accretable yield are considered to be current.  









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The following tables present the credit quality indicators of the Company’s various classes of loans at March 31, 2016 and December 31, 2015 . 

Commercial Non-Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade







		March 31, 2016												December 31, 2015
(in thousands)		Originated			Acquired			FDIC acquired			Total			Originated			Acquired			FDIC acquired			Total
Grade:
Pass		$	5,895,649		$	44,847		$	2,068		$	5,942,564		$	6,205,372		$	53,381		$	2,110		$	6,260,863
Pass-Watch			298,176			—			733			298,909			167,720			—			869			168,589
Special Mention			208,731			2			—			208,733			211,230			—			—			211,230
Substandard			683,449			7,100			2,510			693,059			346,087			6,462			2,549			355,098
Doubtful			2,141			—			—			2,141			44			—			—			44
Total		$	7,088,146		$	51,949		$	5,311		$	7,145,406		$	6,930,453		$	59,843		$	5,528		$	6,995,824



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Construction Credit Exposure

Credit Risk Profile by Internally Assigned Grade







		March 31, 2016												December 31, 2015
(in thousands)		Originated			Acquired			FDIC acquired			Total			Originated			Acquired			FDIC acquired			Total
Grade:
Pass		$	1,036,847		$	837		$	1,455		$	1,039,139		$	1,092,299		$	910		$	2,087		$	1,095,296
Pass-Watch			22,947			150			1,885			24,982			5,709			223			909			6,841
Special Mention			592			—			21			613			12,017			—			280			12,297
Substandard			25,996			1,263			3,421			30,680			29,718			3,947			3,851			37,516
Total		$	1,086,382		$	2,250		$	6,782		$	1,095,414		$	1,139,743		$	5,080		$	7,127		$	1,151,950



Commercial Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade







		March 31, 2016												December 31, 2015
(in thousands)		Originated			Acquired			FDIC acquired			Total			Originated			Acquired			FDIC acquired			Total
Grade:
Pass		$	3,293,852		$	136,879		$	3,114		$	3,433,845		$	3,058,342		$	159,750		$	3,117		$	3,221,209
Pass-Watch			60,595			1,684			2,233			64,512			41,830			2,355			2,296			46,481
Special Mention			42,170			4,804			1,143			48,117			40,576			5,112			1,364			47,052
Substandard			108,171			12,918			8,514			129,603			79,745			9,243			8,805			97,793
Doubtful			15			—			—			15			16			—			—			16
Total		$	3,504,803		$	156,285		$	15,004		$	3,676,092		$	3,220,509		$	176,460		$	15,582		$	3,412,551



Residential Mortgage Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status







		March 31, 2016												December 31, 2015
(in thousands)		Originated			Acquired			FDIC acquired			Total			Originated			Acquired			FDIC acquired			Total
Performing		$	1,816,053		$	1,116		$	159,962		$	1,977,131		$	1,863,295		$	27		$	162,241		$	2,025,563
Nonperforming			23,836			—			—			23,836			23,961			—			—			23,961
Total		$	1,839,889		$	1,116		$	159,962		$	2,000,967		$	1,887,256		$	27		$	162,241		$	2,049,524



Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status







		March 31, 2016												December 31, 2015
(in thousands)		Originated			Acquired			FDIC acquired			Total			Originated			Acquired			FDIC acquired			Total
Performing		$	2,038,432		$	20		$	12,157		$	2,050,609		$	2,069,399		$	20		$	12,819		$	2,082,238
Nonperforming			9,636			—			—			9,636			11,227			—			—			11,227
Total		$	2,048,068		$	20		$	12,157		$	2,060,245		$	2,080,626		$	20		$	12,819		$	2,093,465





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Below are the definitions of the Company’s internally assigned grades:

Commercial :

Residential and Consumer:

Loan review uses a risk-focused continuous monitoring program that provides for an independent, objective and timely review of credit risk within the Company. 

Changes in the carrying amount of acquired-impaired loans and accretable yield are presented in the following table for the three months ended March 31, 2016 and the year ended December 31, 2015 .







Included in loans are $6.0   million and $7.4 million of consumer loans secured by single family residential mortgage real estate that are in process of foreclosure as of March 31, 2016 and December 31, 2015 , respectively.  Of these loans, $4.0   million and $4.1 million, respectively, are covered by an FDIC loss share agreement that provides significant protection against losses.  Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction.  In addition to the single family residential real estate loans in process of foreclosure, the Company also held $5.9 million and $9.3 million of foreclosed single family residential properties in other real estate owned as of March 31, 2016 and December 31, 2015 , respectively.  Of these foreclosed properties, $1.1 million and $1.6 million as of March  3 1, 2016 and December 31, 2015 , respectively, are also covered by the FDIC loss share agreement.

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4.  Securities Sold under Agreements to Repurchase

Included in short term borrowings at March 31, 2016   was $419.0 million of customer securities sold under agreements to repurchase (“repurchase agreements”) that mature daily and were secured by agency securities.  The Company borrows funds on a secured basis by selling securities under agreements to repurchase, mai nly in connection with treasury management services offered to its deposit customers.   As the Company   maintains effective control over assets sold under agreements to repurchase, the securities continue to be carried on the consolidated statements of financial condition. Because the Company acts as borrower transferring assets to the counterparty, and the agreements mature daily, the Company’s risk is very limited.

 

5.  Long-Term Debt



Effective January 1, 2016, the Company retrospectively adopted accounting guidance intended to simplify the presentation of debt issuance costs by requiring that costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Historically, debt issuance costs were reported in the “Other Assets” line items in the Consolidated Balance Sheets and Statements of Cash Flows. All historical periods have been restated to reflect the revised presentation and new required disclosures are reflected below. The adoption of this guidance did not have a material impact on the Company’s financial condition or operating results.   

Long-term debt consisted of the following:







Long-term debt with its related unamortized debt issuance cost at March 31, 2016 is presented in the following table:





 

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6.  Derivatives

Risk Management Objective of Using Derivatives

The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments, currently related to select   pools of variable rate loans .  The Bank has also entered into interest rate derivative agreements as a service to certain qualifying customers.  The Bank manages a matched book with respect to these customer derivatives in order to minimize their net risk exposure resulting from such agreements.  The Bank also enters into risk participation agreements under which they may either sell or buy credit risk associated with a customer’s performance under certain interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2016 and December 31, 2015 .





 



Cash Flow Hedges of Interest Rate Risk

The Company is party to five interest rate swap agreements   designated as and qualify ing as cash flow hedges of the Company’s forec asted variable cash flows for pool s of variable rate loans.   For each agreement, the Company receives interest at a fixed rate and pays at a variable rate.  The five swap agreements expire as follows:  notional amount of $300 million expires in January 2017 ; n otional amount of $200 million expires in June 2017 ; and three contracts each with notional amounts of $100 million expire in April 2018 ,   2019 , and 2020 . 

During the terms of the swap agreements, the effective portion of changes in the fair value of the derivative instruments are recorded in AOCI and subsequently reclassified into earnings in the periods that the hedged forecasted variabl e-rate interest payments affect earnings .  The impact on AOCI is reflected in footnote 7.  There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings.

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies.  The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions.  Because the interest rate derivatives associated with this program do not meet hedge

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accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Risk participation agreements

The Bank also enters into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts.  In those instances where the Bank has assumed credit risk, it is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it is a party to the related loan agreement with the borrower.  In those instances in which the Bank has sold credit risk, it is the sole counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks participate in the related loan ag reement.  The Bank manages its credit risk under risk participation agreements by monitoring the creditworthine ss of the borrower, based on the Bank’s normal credit review process.

Mortgage banking derivatives

The Bank also enters into certain deri vative agreements as part of their mortgage banking activities.  These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.

Customer foreign exchange forward contract derivatives

The Bank enters into foreign exchange forward derivative agreements, primarily forward currency contracts, with commercial ban king customers to facilitate their risk management strategies.  The Bank manages its risk exposure from such transactions by entering into offsetting agreements with unrelated financial institutions.  Because the foreign exchange forward contract derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Effect of Derivative Instruments on the Income Statement

Derivative income consisting primarily of customer interest rate swap fees, net of fair value adjustments, is reflected in the income statement in other noninterest income, totaling ($0.1) million and ($0.1) million for the three months ended March 31, 2016 and 2015, respectively.  The impact to interest income from cash flow hedges was $0.3 million and $0.4 million for the three months ended March 31, 2016 and 2015, respectively. 

Credit risk-related Contingent Features

Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as the downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution.  These derivative agreements also contain provisions regarding the posting of collateral by each party.  As of March 31, 2016 , the aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position was   $31.9 million, for which the Bank had posted collateral of $33.1 million. 

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Offsetting Assets and Liabilities

The Bank’s derivative instruments to certain counterparties contain legally enforceable netting provisions that allow for net settlement of multiple transactions to a single amount, which may be positive, negative, or zero.  Offsetting information in regards to derivative assets and liabilities subject to these master netting agreements at March 31, 2016 and Decemb er 31, 2015 is presented in the following tables.











The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility. 



7.     Stockholders’ Equity

Stock Repurchase Program

On August 28, 2015, the Company’s board of directors approved a stock repurchase plan that authorizes the repurchase of up to 5% , or approximately 3.9 million shares of its outstanding common stock. The approved plan allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company from time to time until September 30, 2016. Under this plan, the Company has repurchased 741,393 shares of its common stock at an average price of $27. 44 per share through March 31, 2016.  There were no shares of common stock repurchased during the first quarter of 2016.

Accumulated Other Comprehensive Income (Loss)

AOCI is reported as a component of stockholders’ equity.  AOCI can include, among other items, unrealized holding gains and losses on securities available for sale (“AFS”), gains and losses associated with pension or other post retirement benefits that are not recognized immediately as a component of net periodic benefit cost, and gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges.  Net unrealized gains/losses on AFS securities reclassified as securities held to maturity (“HTM”) also continue to be reported as a component of AOCI and will be amortized over the estimated remaining life of the securities as an adjustment to interest income.  The components of AOCI are reported net of related tax effects. 



The components of AOCI and changes in those components are presented in the following table.

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The following table shows the line items in the consolidated income statements affected by amounts reclassified from accumulated other comprehensive income.









 



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8.  Other Noninterest Income

Components of other noninterest income are as follows.















9.  Other Noninterest Expense

Components of other noninterest expense are as follows.







 

10.  Earnings Per Share

Hancock calculates earnings per share using the two-class method.  The two-class method allocates net income to each class of common stock and participating security according to common dividends declared and participation rights in undistributed earnings.  Participating securities consist of unvested stock-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. 

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A summary of the information used in the computation of earnings per common share follows.







Potential common shares consist of employee and director stock options.  These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-dilutive, i.e., increase earnings per share or reduce a loss per share.  Weighted-average anti-dilutive potential common shares totaled 656,623   and 862,402 , respectively, for the three months ended March 31, 2016 and March 31, 2015.

 

11.  Retirement Plans

The Company has a qualified defined benefit pension plan covering all eligible employees. Eligibility is based on minimum age-related and service-related requirements as well as job classification. Accrued benefits under a nonqualified plan covering certain legacy Whitney employees were frozen as of December 31, 2012 and no future benefits will be accrued under this plan.

The Company also sponsors defined benefit postretirement plans for both legacy Hancock and legacy Whitney employees that provide health care and life insurance benefits.  Benefits under the Hancock plan are not available to employees hired on or after January 1, 2000. Benefits under the Whitney plan are restricted to retirees who were already receiving benefits at the time of plan amendments in 2007 or active participants who were eligible to receive benefits as of December 31, 2007.

The following tables show the components of net periodic benefits cost included in expense for the plans for the periods indicated.







N o contribution is required in 201 6 to meet minimum funding requirements, and the Company has no plans to make a contribution in the current year .

The Company also provides a defined contribution 401(k) retirement benefit plan. Under the plan, the Company matches 100% of the first 1% of compensation saved by a participant, and 50% of the next 5% of compensation saved.  

 

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12.  Share-Based Payment Arrangements

Hancock maintains incentive compensation plans that provide for awards of share-based compensation to employees and directors.  These plans have been approved by the Company’s shareholders.  Detailed descriptions of these plans were included in Note 16 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 . 

A summary of option activity for the three months ended March 31 , 201 6 is presented below.







The re was no   total intrinsic value of options exercised at March 31, 2016 compared to $0.5 million at March 31, 2015 .

The restricted and performance shares in the table below are subject to service requirements. A summary of the status of the Company’s nonvested restricted and performance shares as of March 31, 2016 and changes during the three months ended March 31, 2016 , is presented in the following table.







As of March 31, 2016 , there were $42.3 million of total unrecognized compensation expense related to nonvested restricted and performance shares expected to vest.  This compensation is expected to be recognized in expense over a weighted average period of 3.4 years.  The total fair value of shares which vested during the three months ended March 31, 2016 and 2015 was $0.9 million for both periods.    

During the three months ended March 31, 2016 , the Company granted 35,587 performance shares subject to a total shareholder return (TSR) performance metric with a grant date fair value of $24.42 per share and 35,587 performance shares subject to a core earnings per share performance metric with a grant date fair value of $22.58 per share to key members of executive management. The number of performance shares subject to TSR that ultimately vest at the end of the three -year performance period, if any, will be based on the relative rank of the Company’s   three -year TSR among the TSRs of a peer group of 44 regional banks. The fair value of the performance shares subject to TSR at the grant date was determined using a Monte Carlo simulation method.  The number of performance shares subject to core earnings per share that ultimately vest will be based on the Company’s attainment of certain core earnings per share goals over the two -year performance period.  The maximum number of performance shares that could vest is 200% of the target award.  Compensation expense for these performance shares is recognized on a straight-line basis over the three -year service period.

 

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13.  Fair Value

The Financial Accounting Standards Board (“FASB”) defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.   The FASB’s guidance also established 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 for identical assets or liabilities (“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.

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 assets and liabilities that are measured at fair value on a recurring basis in the consolidated balance sheets.





		March 31, 2016
(in thousands)		Level 1			Level 2			Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities		$	—		$	125		$	125
Municipal obligations			—			87,939			87,939
Corporate debt securities			—			3,500			3,500
Mortgage-backed securities			—			1,765,974			1,765,974
Collateralized mortgage obligations			—			289,166			289,166
Equity securities			2,762			—			2,762
Total available for sale securities			2,762			2,146,704			2,149,466
Derivative assets (1)			—			36,479			36,479
Total recurring fair value measurements - assets		$	2,762		$	2,183,183		$	2,185,945
Liabilities
Derivative liabilities (1)		$	—		$	36,336		$	36,336
Total recurring fair value measurements - liabilities		$	—		$	36,336		$	36,336











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Securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities and certain other debt and equity securities.  Level 2 classified securities include obligations of U.S. Government agencies and U.S. Government-sponsored agencies, residential mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds.   The level 2 fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-standard pricing models.  Substantially all of the model inputs are observable in the marketplace or can be supported by observable data. 

The Company invests only in securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two and five .  Company policies generally limit investments to agency securities and municipal securities determined to be investment grade according to an internally generated score which generally includes a rating of not less than “Baa” or its equivalent by a nationally recognized statistical rating agency.     There were no transfers between valuation hierarchy levels during the periods shown. 

The fair value of derivative financial instruments, which are predominantly customer interest rate swaps, is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs, LIBOR swap curves and Overnight Index swap rate curves, observable in the marketplace.  To comply with the accounting guidance, credit valuation adjustments are incorporated in the fair values to appropriately reflect nonperformance risk for both the Company and the counterparties.  Although the Company has determined that the majority of the inputs used to value the derivative instruments fall within level 2 of the fair value hierarchy, the credit value adjustments utilize level 3 inputs, such as estimates of current credit spreads.  The Company has determined that the impact of the credit valuation adjustments is not significant to the overall valuation of these derivatives.  As a result, the Company has classified its derivative valuations in their entirety in level 2 of the fair value hierarchy. The Company’s policy is to measure counterparty credit risk quarterly for all derivative instruments, including those subject to master netting arrangements consistent with how market participants would price the net risk exposure at the measurement date. 

The Company also has certain derivative instruments associated with the Bank’s mortgage-banking activities.  These derivative instruments include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.  The fair value of these derivative instruments is measured using observable market prices for similar instruments and is classified as a level 2 measurement. 

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis.  Collateral-dependent impaired loans are level 2 assets measured at the fair value of the underlying collateral based on independent third-party appraisals that take into consideration market-based information such as recent sales activity for similar assets in the property’s market. 

Other real estate owned, including both foreclosed property and surplus banking property, are level 3 assets that are adjusted to fair value, less estimated selling costs, upon transfer to other real estate owned.  Subsequently, other real estate owned is carried at the lower of carrying value or fair value less estimated selling costs.  Fair values are determined by sales agreement or third-party appraisals as discounted for estimated selling costs, information from comparable sales, and marketability of the property. 

The fair value information presented below is not as of the period-end, rather it was as of the date the fair value adjustment was recorded during the twelve months for each of the dates presented below, and excludes nonrecurring fair value measurements of assets no longer on the balance sheet. 

The following tables present the Company’s financial assets that are measured at fair value on a nonrecurring basis for each of the fair value hierarchy levels.









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Accounting guidance from the FASB requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring basis.  The significant methods and assumptions used by the Company to estimate the fair value of financial i nstruments are discussed below.

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

Securities – The fair value measurement for securities available for sale was discussed earlier in the note.  The same measurement techniques were applied to the valuation of securities held to maturity. 

Loans, Net -   The fair value measurement for certain impaired loans was discussed earlier in the note.  For the remaining portfolio, fair values were generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which loans with similar terms would be made to borrowers of similar credit quality. 

Loans Held for Sale – These loans are recorded at fair value and carried at the lower of cost or market.  The carrying amount is considered a reasonable estimate of fair value. 

Deposits - The accounting 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.

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

Long-Term Debt - The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained.  

Derivative Financial Instruments – The fair value measurement for derivative financial instruments was discussed earlier in the note.

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The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amount at March 31, 2016 and December 31, 2015 .











 





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14.  Recent Accounting Pronouncements



New Accounting Standards Adopted in 2016

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation Analysis” that changed the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this ASU (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The amendments in this update were effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.  The Company performed the consolidation analysis using the new guidelines effective as of January 1, 2016.  The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.



In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The guidance in this ASU does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements.  Therefore, the FASB issued ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting)” to clarify the SEC staff position that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.  We adopted ASU 2015-03 and ASU 2015-15 on the first day of 2016 as required by the guidance and applied it retrospectively to the first day of 2012.  Our adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.  We retrospectively adjusted the balance sheet, statement of cash flows, long-term debt note and sele cted financial data .  The effect of the change on the financial statement line items of Other Assets and Long-term Debt was immaterial (See Note 5) .

In April 2015, the FASB issued ASU 2015-05, Subtopic 350-40 “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” that provides guidance to customers about how to account for a cloud computing arrangement depending on whether or not it includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance did not change GAAP for a customer’s accounting for service contracts.  For public business entities, the amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company elected to adopt this guidance prospectively to all arrangements entered into or materially modified on or after the first day of 2016, as required by the guidance. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” that removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient.  The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

In September 2015, the FASB issued ASU 2015-16 “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.



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Recently Issued but Not Yet Adopted Accounting Standards



In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” that clarifies the identification of performance obligations and licensing from revenue from contracts with customers.  The amendments help determine whether promises to transfer goods or services to a customer are separately identifiable by emphasizing that an entity determines whether the nature of its promise in the contract is to transfer each of the goods or services or whether the promise is to transfer a combined item (or items) to which the promised goods and/or services are inputs. In addition, the amendments clarify how to determine whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property or a right to access the entity’s intellectual property.  Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing this pronouncement and adoption of this guidance, but it is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” to improve the accounting for employee share-based payments. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is currently assessing this pronouncement and the impact of adoption. 



In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” that improves the operability and understandability of the implementation on guidance on principal versus agent considerations.  The amendments relate to when another party, along with the entity, is involved in providing a good or service to a customer.  It requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (i.e., the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (i.e., the entity is an agent).  Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-07 “Investments —Equity Method and Joint Ventures (Topic 323)” that simplifies the transition to the equity method of accounting.  The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.  The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.  Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.  The amendments require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.  The amendments are effective for all entities for fiscal years beginning after December 15, 2016.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.  



In March 2016, the FASB issued ASU 2016-06 “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments” that requires embedded derivatives to be separated from the host contract and accounted for separately as derivatives if certain criteria are met.  The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options.  The amendments clarify what steps are required when assessing whether the economic characteristics and risks or call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative.  Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credits risks.  Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years.  Early adoption is permitted.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-05 “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships” that clarifies that a change in the counterparty to a derivative instrument that has been

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designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship.  The amendments apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument.  The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.  The amendments may be applied on either a prospective basis or a modified retrospective basis.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-04 “Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products” to provide guidance to entities that offer certain prepaid stored value products, such as prepaid gift cards, prepaid telecommunication cards, and traveler’s checks.  The amendments provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606 Revenue from Contracts with Customers.  The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  These amendments can either be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective, or retrospectively to each period presented.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” that provides new lease accounting guidance.  Under the guidance, lessees (with the exception of short-term leases) will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.  Lessor accounting is largely unchanged.  Lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability.  Lessees will no longer be provided with a source of off-balance sheet financing.  Public business entities should apply the amendments for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early application is permitted. The Company is currently assessing this pronouncement and adoption of this guidance. 



In January 2016, the FASB issued an ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” that improves the recognition and measurement of financial instruments through targeted changes to existing GAAP. It requires equity investments (except those that are accounted for under the equity method of accounting or result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It also requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” regarding revenue from contracts with customers affecting any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017. The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.