Note 7 – Other Real Estate and Covered Other Real Estate

Other Real Estate, excluding Covered Other Real Estate

Other real estate owned, excluding covered other real estate, (noncovered other real estate owned) is recorded at the lower of cost or estimated fair value less the estimated cost of disposition. Fair value is based on independent appraisals and other relevant factors. Valuation adjustments required at foreclosure are charged to the allowance for loan losses. At March 31, 2012, Trustmark's geographic loan distribution was concentrated primarily in its Florida, Mississippi, Tennessee and Texas markets. The ultimate recovery of a substantial portion of the carrying amount of noncovered other real estate owned is susceptible to changes in market conditions in these areas.

For the periods presented, changes and gains (losses), net on noncovered other real estate were as follows ($ in thousands):

	Three Months Ended March 31,
	2012			2011
Balance at beginning of period	$	79,053		$	86,704
Additions		8,864			19,552
Disposals		(9,767	)		(15,055	)
Writedowns		(2,408	)		(2,003	)
Balance at end of period	$	75,742		$	89,198

(Loss) gain, net on the sale of noncovered other real estate included in ORE/Foreclosure expenses	$	(416	)	$	344

Other real estate, excluding covered other real estate, by type of property consisted of the following for the periods presented ($ in thousands):

	March 31,		December 31,
	2012		2011
Construction, land development and other land properties	$	48,083	$	53,834
1-4 family residential properties		10,715		10,557
Nonfarm, nonresidential properties		16,463		13,883
Other real estate properties		481		779
Total other real estate, excluding covered other real estate	$	75,742	$	79,053

Other real estate, excluding covered other real estate by geographic location consisted of the following for the periods presented ($ in thousands):

	March 31,		December 31,
	2012		2011
Florida	$	26,226	$	29,963
Mississippi (1)		19,240		19,483
Tennessee (2)		17,665		16,879
Texas		12,611		12,728
Total other real estate, excluding covered other real estate	$	75,742	$	79,053

(1)	- Mississippi includes Central and Southern Mississippi Regions

(2)	- Tennessee includes Memphis, Tennessee and Northern Mississippi Regions

Covered Other Real Estate

Covered other real estate was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value are charged to noninterest expense, and are mostly offset by noninterest income representing the corresponding increase to the FDIC indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous valuation adjustments will be credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

As of the date of the Heritage acquisition, TNB acquired $7.5 million in covered other real estate. For the three months ended March 31, 2012, changes and gains, net on covered other real estate were as follows ($ in thousands):

Balance at January 1, 2012	$	6,331
Transfers from covered loans		144
FASB ASC 310-30 adjustment for the residual recorded investment		(10	)
Net transfers from covered loans		134
Disposals		(518	)
Writedowns		(123	)
Balance at March 31, 2012	$	5,824

Gain, net on the sale of covered other real estate included in ORE/Foreclosure expenses	$	158

Covered other real estate by type of property consisted of the following for the periods presented ($ in thousands):

	March 31,		December 31,
	2012		2011
Construction, land development and other land properties	$	1,423	$	1,304
1-4 family residential properties		574		889
Nonfarm, nonresidential properties		3,711		4,022
Other real estate properties		116		116
Total covered other real estate	$	5,824	$	6,331