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 2008 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 150 banking and financial services offices and more than 130 automated teller machines (ATMs) in the states of Mississippi, Louisiana, Florida and Alabama through four wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi (Hancock Bank MS), Hancock Bank of Louisiana, Baton Rouge, Louisiana (Hancock Bank LA), Hancock Bank of Florida, Tallahassee, Florida (Hancock Bank FL) and Hancock Bank of Alabama, Mobile, Alabama (Hancock Bank AL). Hancock Bank MS, Hancock Bank LA, Hancock Bank FL 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 June 30, 2009, we had total assets of $7.0 billion and employed on a full-time equivalent basis 1,257 persons in Mississippi, 559 persons in Louisiana, 52 persons in Florida and 43 persons in Alabama.

RESULTS OF OPERATIONS

Net income for the second quarter of 2009 totaled $13.7 million, a decrease of $7.2 million, or 34.5%, from the second quarter of 2008. Diluted earnings per share for the second quarter of 2009 were $0.43, a decrease of $0.23 from the same quarter a year ago. Return on average assets for the second quarter of 2009 was 0.78% compared to 1.36% for the second quarter of 2008.

Our second quarter net income was significantly impacted by a higher level of net charge-offs due to the ongoing recession and continued rise in unemployment. Net charge-offs for 2009's second quarter were $16.0 million, or 1.50 percent of average loans, compared to $2.5 million, or 0.27% of average loans in the second quarter of 2008. Of the overall increase in net charge-offs of $13.5 million, $11.9 million was reflected in commercial loans and the balance of $1.6 million in consumer loan categories. The higher level of commercial net charge-offs were largely confined to land development and commercial real estate credits in various parts of our four state footprint.

Our balance sheet showed strong growth this quarter compared to the same quarter a year ago. Total assets increased $0.8 billion, or 12.4% compared to June 30, 2008. The growth in assets was organic as we did not record any acquisitions in the past twelve months. Period-end loans increased $484.9 million, or 12.8%, from the same quarter a year ago. Period-end deposits increased $635.4 million, or 12.7%, from June 30, 2008. We also remain very well capitalized with total equity of $630.8 million at June 30, 2009, up $57.4 million, or 10.0%, from June 30, 2008.

Net Interest Income

Net interest income (te) for the second quarter increased $5.0 million, or 9.2 percent, while the net interest margin (te) of 3.78 percent was 13 basis points 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 $725.6 million, or 13.0 percent, reflected in higher average loans (up $565.3 million) and short-term investments (up $408.8 million) partially offset by lower securities (down $248.6 million). With short-term interest rates down significantly from the same quarter a year ago, our loan yield fell 80 basis points, pushing the yield on average earning assets down 77 basis points. However, total funding costs over the same quarter a year ago were down 64 basis points.

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. We recorded a provision for loan losses of $16.9 million in the second quarter which is a $14.1 million increase in the provision for loan losses compared to $2.8 million for the quarter ended June 30, 2008. This increase was necessary to adjust the allowance to the level dictated by the Company's reserving methodologies. The provision remains elevated due to the ongoing recession and continued rise in unemployment.

Allowance for Loan Losses and Asset Quality

At June 30, 2009, the allowance for loan losses was $63.9 million compared with $61.7 million at December 31, 2008, an increase of $2.2 million. The increase in the allowance for loan losses through the first six months of 2009 is primarily attributed to both an increased estimated provision for SFAS No. 5 pooled loan loss analysis and an increased specific reserve for SFAS No. 114 impairment across all markets. Management utilizes quantitative methodologies and modeling to determine the adequacy of the allowance for loan and lease losses. A detailed description of our methodology was included in the Company's annual report on Form 10-K for the year ended December 31, 2008. Management believes the June 30, 2009 allowance level is adequate.

Net charge-offs, as a percent of average loans, were 1.50% for the second quarter of 2009, compared to 0.27% in the second quarter of 2008. The majority of the increase in net charge-offs, as compared to the same time last year, was caused by the weakening local real estate markets, mostly in commercial real estate loans. Of the overall increase in net charge-offs of $13.5 million, $11.9 million was reflected in commercial loans with the balance of $1.6 million in consumer loan categories. The higher level of commercial net charge-offs were largely confined to land development and commercial real estate credits and were confined to a relatively small number of credits.

Nonaccrual loans were $34.2 million at June 30, 2009, an increase of $16.1 million, from $18.1 million at June 30, 2008. This increase is due to the weakening real estate markets across all markets due to the ongoing 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 June 30,             Six Months Ended June 30,
                                                2009                 2008              2009                2008
Net charge-offs to average loans
(annualized)                                         1.50 %               0.27 %            1.09 %              0.30 %

Provision for loan losses to average
loans (annualized)                                   1.59 %               0.30 %            1.19 %              0.63 %

Allowance for loan losses to average
loans                                                1.49 %               1.44 %            1.49 %              1.45 %

Gross charge-offs                          $       17,144       $        3,968     $      25,421       $       8,165

Gross recoveries                           $        1,125       $        1,473     $       2,285       $       2,737

Non-accrual loans                          $       34,189       $       18,106     $      34,189       $      18,106

Accruing loans 90 days or more past due    $       11,435       $        6,449     $      11,435       $       6,449

Noninterest Income

Noninterest income for the second quarter of 2009 was up $2.7 million, or 8%, compared to the same quarter a year ago. Other income increased $3.5 million mainly due to a $1.8 million increase in other investment income, $1.4 million in gains on the sales of land and $0.4 million received on a legal settlement. Secondary mortgage market operations were up $1.1 million, or 143%, due to increased volume of secondary market loans. Because of the historically low rate environment, the refinancing of current loans increased during the first half of 2009. Offsetting the increases were trust fees (down $0.7 million, or 16%), because of reduced market values of accounts due to poor economic conditions and investment and annuity fees (down $1.0 million, or 38%), because of decreased production and poor economic factors. Noninterest income for the first six months of 2009 was down $4.7 million, or 7%, compared to the first six months of 2008 for the same reasons stated above additionally offset by a $1.1 million decrease in income from insurance operations that occurred mostly in the first quarter due a decrease in credit life premium production. Also contributing to the reduction of noninterest income from the first six months of last year were securities transaction gains of $6.0 million in the first quarter of 2008. We received proceeds from the VISA IPO which resulted in a $2.8 million realized securities gain and we had a $3.2 million net gain for a fair value adjustment up to the point in time of a transfer on trading securities we reclassified from trading to available for sale because we intended to hold them for a longer period of time.

The components of noninterest income for the three and six months ended June 30, 2009 and 2008 are presented in the following table:

                                               Three Months Ended June 30,             Six Months Ended June 30,
                                                2009                 2008              2009                2008
                                                                        (In thousands)

Service charges on deposit accounts        $       11,242       $       10,879     $      21,745       $      21,669
Trust fees                                          3,855                4,575             7,181               8,751
Credit card merchant discount fees                  2,895                2,884             5,463               5,423
Income from insurance operations                    4,048                4,259             7,500               8,600
Investment and annuity fees                         1,691                2,727             4,551               5,536
ATM fees                                            1,895                1,757             3,674               3,448
Secondary mortgage market operations                1,827                  753             2,985               1,531
Other income                                        7,051                3,578            10,460               7,224
Securities transactions gains, net                      -                  426                 -               6,078
Total noninterest income                   $       34,504       $       31,838     $      63,559       $      68,260

Noninterest Expense

Operating expenses for the second quarter of 2009 were $6.0 million, or 12%, higher compared to the same quarter a year ago. The main increase from the same quarter a year ago was reflected in higher levels of deposit insurance and regulatory fees which were up $5.3 million, or 766%, due to the expiration of the FDIC special credit in the second quarter of 2008 and a $3.4 million FDIC special assessment in the second quarter of 2009. Total personnel expense also increased $1.7 million, or 6%, due to salary increases and increased pension and postretirement expense. There were also some offsets to the increase in operating expenses over the same quarter a year ago. Legal and professional services expense was down $0.7 million, or 21%, due to reduced audit fees and reduced commissions paid in Magna Insurance Company. Franchise taxes were down $0.4 million, or 36%, because of refunds received in Magna and Harrison Finance Company. Operating expenses for the first six months of 2009 were $11.7 million, or 11%, higher compared to the first six months of 2008. As explained above, deposit insurance and regulatory fees increased $6.9 million in addition to an increase of $6.8 million in personnel expenses due to an increase in employees to support increased loan production. These increases were partially offset by decreases in postage and communications ($0.7 million or 15%), legal and professional services ($0.7 million or 12%) and advertising ($0.8 million or 25%).

The following table presents the components of noninterest expense for the three and six months ended June 30, 2009 and 2008.

                                               Three Months Ended June 30,           Six Months Ended June 30,
                                                2009                 2008              2009               2008
                                                                       (In thousands)

Employee compensation                      $       22,577       $       21,565     $      46,238       $   41,183
Employee benefits                                   6,126                5,466            13,240           11,479
Total personnel expense                            28,703               27,031            59,478           52,662
Equipment and data processing expense               7,277                7,420            14,456           14,532
Net occupancy expense                               5,016                4,702            10,071            9,303
Postage and communications                          2,240                2,285             3,926            4,599
Ad valorem and franchise taxes                        647                1,010             1,533            2,125
Legal and professional services                     2,425                3,083             5,117            5,828
Stationery and supplies                               444                  551               908              978
Amortization of intangible assets                     354                  364               709              729
Advertising                                         1,255                1,446             2,428            3,250
Deposit insurance and regulatory fees               5,962                  689             7,945            1,014
Training expenses                                      81                  167               179              353
Other real estate owned expense, net                  213                  (79 )             578              132
Other expense                                       3,609                3,520             6,736            6,818
Total noninterest expense                  $       58,226       $       52,189     $     114,064       $  102,323

Income Taxes

For the six months ended June 30, 2009 and 2008, the effective income tax rates were approximately 19% and 28%, respectively. Because of the reduced level of pretax income in 2009, the tax exempt interest income and the utilization of tax credits had a significant impact on the effective tax rate. The total amount of tax-exempt income earned during the first six months of 2009 was $10.4 million compared to $8.8 million in the comparable period in 2008. Tax-exempt income for the six months ended June 30, 2009 consisted of $2.5 million from securities and $7.9 million from loans and leases. Tax-exempt income for the first six months of 2008 consisted of $3.0 million from securities and $5.8 million from loans and leases. The total amount of tax credits earned during the first six months of 2009 was $2.6 million compared to $2.0 million in the comparable period in 2008. The source of the tax credits for 2009 resulted from investments in New Market Tax Credits, Qualified Zone Activity Bonds Credits, Work Opportunity Tax Credits, related to hiring individuals in the Go Zone, and Historic Tax Credits.

Selected Financial Data

The following tables contain selected financial data comparing our consolidated
results of operations for the three and six months ended June 30, 2009 and 2008.


                                               Three Months Ended June 30,             Six Months Ended June 30,
                                                2009                 2008              2009                2008
Per Common Share Data                                        (In thousands, except per share data)
Earnings per share:
Basic                                      $         0.43       $         0.67     $        0.87       $        1.31
Diluted                                    $         0.43       $         0.66     $        0.87       $        1.29
Cash dividends per share                   $         0.24       $         0.24     $        0.48       $        0.48
Book value per share (period-end)          $        19.82       $        18.27     $       19.82       $       18.27
Weighted average number of shares:
Basic                                              31,820               31,382            31,812              31,366
Diluted (1)                                        32,009               31,814            31,973              31,779
Period-end number of shares                        31,827               31,386            31,827              31,386
Market data:
High price                                 $        41.19       $        45.68     $       45.56       $       45.68
Low price                                  $        30.12       $        38.38     $       22.51       $       33.45
Period-end closing price                   $        32.49       $        39.29     $       32.49       $       39.29
Trading volume                                     17,040               14,527            35,093              31,731

(1) There were no anti-dilutive share-based incentives outstanding for the three and six months ended June 30, 2009 and June 30, 2008.

                                             Three Months Ended June 30,          Six Months Ended June 30,
                                                2009               2008              2009             2008
Performance Ratios                                            (dollar amounts in thousands)
Return on average assets                              0.78 %           1.36 %             0.79 %          1.33 %
Return on average common equity                       8.67 %          14.51 %             8.89 %         14.32 %
Earning asset yield (tax equivalent
("TE"))                                               5.26 %           6.03 %             5.26 %          6.16 %
Total cost of funds                                   1.48 %           2.12 %             1.62 %          2.30 %
Net interest margin (TE)                              3.78 %           3.91 %             3.64 %          3.86 %
Common equity (period-end) as a percent
of total assets (period-end)                          8.95 %           9.15 %             8.95 %          9.15 %
Leverage ratio (period-end)                           8.13 %           8.57 %             8.13 %          8.57 %
FTE headcount                                        1,911            1,903              1,911           1,903

Asset Quality Information
Non-accrual loans                          $        34,189      $    18,106     $       34,189     $    18,106
Foreclosed assets                          $         8,884      $     1,693     $        8,884     $     1,693
Total non-performing assets                $        43,073      $    19,799     $       43,073     $    19,799
Non-performing assets as a percent of
loans and foreclosed assets                           1.01 %           0.52 %             1.01 %          0.52 %
Accruing loans 90 days past due            $        11,435      $     6,449     $       11,435     $     6,449
Accruing loans 90 days past due as a
percent of loans                                      0.27 %           0.17 %             0.27 %          0.17 %
Non-performing assets + accruing loans
90 days past due to loans and foreclosed
assets                                                1.27 %           0.69 %             1.27 %          0.69 %
Net charge-offs                            $        16,019      $     2,495     $       23,136     $     5,428
Net charge-offs as a percent of average
loans                                                 1.50 %           0.27 %             1.09 %          0.30 %
Allowance for loan losses                  $        63,850      $    53,300     $       63,850     $    53,300
Allowance for loan losses as a percent
of period-end loans                                   1.49 %           1.41 %             1.49 %          1.41 %
Allowance for loan losses to NPAs +
accruing loans 90 days past due                     117.14 %         203.06 %           117.14 %        203.06 %
Provision for loan losses                  $        16,919      $     2,787     $       25,261     $    11,605

Average Balance Sheet
Total loans                                $     4,277,351      $ 3,712,005     $    4,281,342     $ 3,675,306
Securities                                       1,581,966        1,830,533          1,616,417       1,782,765
Short-term investments                             466,350           57,518            501,688         128,502
Earning assets                                   6,325,667        5,600,056          6,399,447       5,586,573
Allowance for loan losses                          (63,027 )        (53,012 )          (62,681 )       (50,198 )
Other assets                                       762,972          676,189            767,546         681,306
Total assets                               $     7,025,612      $ 6,223,233     $    7,104,312     $ 6,217,681

Noninterest bearing deposits               $       955,050      $   880,375     $      934,542     $   869,541
Interest bearing transaction deposits            1,497,395        1,447,301          1,480,194       1,412,006
Interest bearing public fund deposits            1,376,203          946,411          1,437,438         954,290
Time deposits                                    1,878,473        1,687,218          1,955,770       1,768,022
Total interest bearing deposits                  4,752,071        4,080,930          4,873,402       4,134,318
Total deposits                                   5,707,121        4,961,305          5,807,944       5,003,859
Other borrowed funds                               573,739          567,151            555,209         525,847
Other liabilities                                  108,666          113,096            110,963         111,781
Common stockholders' equity                        636,086          581,681            630,196         576,194
Total liabilities & common stockholders'
equity                                     $     7,025,612      $ 6,223,233     $    7,104,312     $ 6,217,681