From the chatting list, tap the Options icon (at the upper-left corner of the screen) > Settings.
Enable merged conversations: Enable this setting to merge your contact conversations from both SMS and Hangouts together.
Tap SMS to access the following settings: SMS enabled (or disabled), Default SMS Messaging Account, Blocked people, Sound, Vibrate, Delete old messages, Delivery reports, Auto retrieve MMS, and Roaming auto-retrieve.
Tap your account to access the following settings: Profile photo, Share your status, Hangouts messages & invites, Video calls, Customize invites, Google+ profile, Verified phone number (or Verify phone number), Hidden contacts, Sign out, and Improve Hangouts.