Note 4 - Loans Held for Investment (LHFI) and Allowance for Loan Losses, LHFI

For the periods presented, LHFI consisted of the following ($ in thousands):

	June 30, 2012		December 31, 2011
Loans secured by real estate:
Construction, land development and other land loans	$	464,349	$	474,082
Secured by 1-4 family residential properties		1,621,865		1,760,930
Secured by nonfarm, nonresidential properties		1,392,293		1,425,774
Other		192,376		204,849
Commercial and industrial loans		1,142,282		1,139,365
Consumer loans		196,718		243,756
Other loans		640,665		608,728
LHFI		5,650,548		5,857,484
Less allowance for loan losses, LHFI		84,809		89,518
Net LHFI	$	5,565,739	$	5,767,966

Loan Concentrations

Trustmark does not have any loan concentrations other than those reflected in the preceding table, which exceed 10% of total LHFI. At June 30, 2012, Trustmark's geographic loan distribution was concentrated primarily in its Florida, Mississippi, Tennessee and Texas markets. A substantial portion of construction, land development and other land loans are secured by real estate in markets in which Trustmark is located. Accordingly, the ultimate collectability of a substantial portion of these loans and the recovery of a substantial portion of the carrying amount of other real estate owned, are susceptible to changes in market conditions in these areas.

Nonaccrual/Impaired LHFI

At June 30, 2012 and December 31, 2011, the carrying amounts of nonaccrual LHFI which are considered for impairment analysis, were $99.7 million and $110.5 million, respectively. For collateral dependent loans, when a loan is deemed impaired, the full difference between the carrying amount of the loan and the most likely estimate of the asset's fair value less cost to sell, is charged-off. All of Trustmark's specifically evaluated impaired LHFI are collateral dependent loans. At June 30, 2012 and December 31, 2011, specifically evaluated impaired LHFI totaled $59.5 million and $68.9 million, respectively. In addition, these specifically evaluated impaired LHFI had a related allowance of $9.8 million and $8.8 million at the end of the respective periods. Specific charge-offs related to impaired LHFI totaled $6.4 million and $16.1 million for the first six months of 2012 and 2011, respectively. A recovery of $1.9 million was recorded to net income for these loans for the first six months of 2012, while provisions of $5.4 million were charged to net income for these loans for the first six months of 2011.

All commercial nonaccrual LHFI over $500 thousand are individually assessed for impairment. Impaired LHFI have been determined to be collateral dependent and assessed using a fair value approach. Fair value estimates begin with appraised values based on the current market value/as-is value of the property being appraised, normally from recently received and reviewed appraisals. If a current appraisal, or one with an inspection date within the past 12 months, using the necessary assumptions is not in the file, a new appraisal is ordered. Appraisals are obtained from State-certified Appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. The Appraisal Review Department has the authority to make adjustments to appraisals based on sales contracts, comparable sales and other pertinent information if an appraisal does not incorporate the effect of these assumptions. Appraised values are adjusted down for costs associated with asset disposal. Once the current appraisal is received and the estimated net realizable value determined, the value used in the impairment assessment is updated and adjustments are made to reflect further impairments. At the time a LHFI is deemed to be impaired, the full difference between book value and the most likely estimate of the asset's net realizable value is charged off. However, as subsequent events dictate and estimated net realizable values decline, required reserves are established.

At June 30, 2012 and December 31, 2011, nonaccrual LHFI not specifically reviewed for impairment and written down to fair value less cost to sell, totaled $40.2 million and $41.6 million, respectively. In addition, these nonaccrual LHFI had allocated allowance for loan losses of $4.0 million and $3.9 million at the end of the respective periods. No material interest income was recognized in the income statement on impaired or nonaccrual LHFI for each of the periods ended June 30, 2012 and 2011.

The following table details LHFI individually and collectively evaluated for impairment at June 30, 2012 and December 31, 2011 ($ in thousands):

	June 30, 2012
	LHFI Evaluated for Impairment
	Individually		Collectively		Total

Loans secured by real estate:
Construction, land development and other land loans	$	35,260	$	429,089	$	464,349
Secured by 1-4 family residential properties		24,101		1,597,764		1,621,865
Secured by nonfarm, nonresidential properties		29,496		1,362,797		1,392,293
Other		4,604		187,772		192,376
Commercial and industrial loans		5,560		1,136,722		1,142,282
Consumer loans		496		196,222		196,718
Other loans		163		640,502		640,665
Total	$	99,680	$	5,550,868	$	5,650,548

	December 31, 2011
	LHFI Evaluated for Impairment
	Individually		Collectively		Total

Loans secured by real estate:
Construction, land development and other land loans	$	40,413	$	433,669	$	474,082
Secured by 1-4 family residential properties		24,348		1,736,582		1,760,930
Secured by nonfarm, nonresidential properties		23,981		1,401,793		1,425,774
Other		5,871		198,978		204,849
Commercial and industrial loans		14,148		1,125,217		1,139,365
Consumer loans		825		242,931		243,756
Other loans		872		607,856		608,728
Total	$	110,458	$	5,747,026	$	5,857,484

At June 30, 2012 and December 31, 2011, LHFI classified as troubled debt restructurings (TDRs) totaled $36.7 million and $34.2 million, respectively. For TDRs, Trustmark had a related loan loss allowance of $8.7 million and $4.5 million at the end of each respective period. Specific charge-offs related to TDRs totaled $1.1 million and $1.4 million for the six months ended June 30, 2012 and 2011, respectively. LHFI that are TDRs are charged down to the most likely fair value estimate less an estimated cost to sell for collateral dependent loans, which would approximate net realizable value.

The following table illustrates the impact of modifications classified as TDRs for the three and six months ended June 30, 2012 as well as those TDRs modified within the last 12 months for which there was a payment default during the period ($ in thousands):

	Three Months Ended June 30, 2012
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction, land development and other land loans		3	$	467	$	467
Secured by 1-4 family residential properties		3		358		369
Total		6	$	825	$	836

	Six Months Ended June 30, 2012
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction, land development and other land loans		11	$	4,078	$	4,078
Secured by 1-4 family residential properties		5		1,367		1,378
Secured by nonfarm, nonresidential properties		2		1,210		1,210
Total		18	$	6,655	$	6,666

	Six Months Ended June 30, 2012
Troubled Debt Restructurings that Subsequently Defaulted		Number of Contracts				Recorded Investment
Construction, land development and other land loans		10			$	5,014
Secured by 1-4 family residential properties		8				3,234
Secured by nonfarm, nonresidential properties		1				881
Total		19			$	9,129

Trustmark's TDRs have resulted primarily from allowing the borrower to pay interest only for an extended period of time rather than from forgiveness. Accordingly, as shown above, these TDRs have a similar recorded investment for both the pre-modification and post-modification disclosure. Trustmark has utilized loans 90 days or more past due to define payment default in determining TDRs that have subsequently defaulted.

At June 30, 2012 and December 31, 2011, the following table details LHFI classified as TDRs by loan type ($ in thousands):

	June 30, 2012
	Accruing		Nonaccrual		Total
Construction, land development and other land loans	$	237	$	14,158	$	14,395
Secured by 1-4 family residential properties		1,256		4,318		5,574
Secured by nonfarm, nonresidential properties		-		13,723		13,723
Commercial and industrial		-		3,002		3,002
Total Troubled Debt Restructurings by Type	$	1,493	$	35,201	$	36,694

	December 31, 2011
	Accruing		Nonaccrual		Total
Construction, land development and other land loans	$	241	$	14,041	$	14,282
Secured by 1-4 family residential properties		782		3,485		4,267
Secured by nonfarm, nonresidential properties		-		4,135		4,135
Commercial and industrial		-		11,503		11,503
Total Troubled Debt Restructurings by Type	$	1,023	$	33,164	$	34,187

At June 30, 2012 and December 31, 2011, the carrying amount of LHFI evaluated for impairment consisted of the following ($ in thousands):

	June 30, 2012
	LHFI
	Unpaid		With No Related		With an		Total				Average
	Principal		Allowance		Allowance		Carrying		Related		Recorded
	Balance		Recorded		Recorded		Amount		Allowance		Investment

Loans secured by real estate:
Construction, land development and other land loans	$	55,838	$	13,777	$	21,483	$	35,260	$	4,830	$	37,836
Secured by 1-4 family residential properties		32,548		882		23,219		24,101		1,270		24,225
Secured by nonfarm, nonresidential properties		35,490		11,253		18,243		29,496		5,997		26,738
Other		6,657		3,690		914		4,604		389		5,238
Commercial and industrial loans		6,369		60		5,500		5,560		1,234		9,854
Consumer loans		756		-		496		496		5		661
Other loans		191		-		163		163		44		517
Total	$	137,849	$	29,662	$	70,018	$	99,680	$	13,769	$	105,069

	December 31, 2011
	LHFI
	Unpaid		With No Related		With an		Total				Average
	Principal		Allowance		Allowance		Carrying		Related		Recorded
	Balance		Recorded		Recorded		Amount		Allowance		Investment

Loans secured by real estate:
Construction, land development and other land loans	$	58,757	$	11,123	$	29,290	$	40,413	$	6,547	$	49,122
Secured by 1-4 family residential properties		33,746		1,560		22,788		24,348		1,348		27,330
Secured by nonfarm, nonresidential properties		27,183		13,770		10,211		23,981		2,431		26,497
Other		7,158		1,548		4,323		5,871		1,007		6,013
Commercial and industrial loans		16,102		8,724		5,424		14,148		1,137		15,127
Consumer loans		1,097		-		825		825		9		1,468
Other loans		2,559		220		652		872		185		1,132
Total	$	146,602	$	36,945	$	73,513	$	110,458	$	12,664	$	126,689

Credit Quality Indicators

Trustmark's loan portfolio credit quality indicators focus on six key quality ratios that are compared against bank tolerances. The loan indicators are total classified outstanding, total criticized outstanding, nonperforming loans, nonperforming assets, delinquencies and net loan losses. Due to the homogenous nature of consumer loans, Trustmark does not assign a formal internal risk rating to each credit and therefore the criticized and classified measures are unique to commercial loans.

In addition to monitoring portfolio credit quality indictors, Trustmark also measures how effectively the lending process is being managed and risks are being identified. As part of an ongoing monitoring process, Trustmark grades the commercial portfolio as it relates to financial statement exceptions, total policy exceptions, collateral exceptions and violations of law as shown below:

Financial Statement Exceptions - focuses on the officers' ongoing efforts to obtain, evaluate and/or document sufficient information to determine the quality and status of the credits. This area includes the quality and condition of the files in terms of content, completeness and organization. Included is an evaluation of the systems/procedures used to insure compliance with policy such as financial statements, review memos and loan agreement covenants.

Underwriting/Policy - evaluates whether credits are adequately analyzed, appropriately structured and properly approved within requirements of bank loan policy. A properly approved credit is approved by adequate authority in a timely manner with all conditions of approval fulfilled. Total policy exceptions measure the level of exceptions to loan policy within a loan portfolio.

Collateral Documentation - focuses on the adequacy of documentation to support the obligation, perfect Trustmark's collateral position and protect collateral value. There are two parts to this measure:

Collateral exceptions where certain collateral documentation is either not present, is not considered current or has expired.

90 days and over collateral exceptions are where certain collateral documentation is either not present, is not considered current or has expired and the exception has been identified in excess of 90 days.

Compliance with Law - focuses on underwriting, documentation, approval and reporting in compliance with banking laws and regulations. Primary emphasis is directed to Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and Regulation O requirements.

Commercial Credits

Trustmark has established a Loan Grading System that consists of ten individual Credit Risk Grades (Risk Ratings) that encompass a range from loans where the expectation of loss is negligible to loans where loss has been established. The model is based on the risk of default for an individual credit and establishes certain criteria to delineate the level of risk across the ten unique Credit Risk Grades. Credit risk grade definitions are as follows:

Risk Rate (RR) 1 through RR 6 - Grades one through six represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risk measured by using a variety of credit risk criteria such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.

Other Assets Especially Mentioned (OAEM) (RR 7) - a loan that has a potential weakness that if not corrected will lead to a more severe rating. This rating is for credits that are currently protected but potentially weak because of an adverse feature or condition that if not corrected will lead to a further downgrade.

Substandard (RR 8) - a loan that has at least one identified weakness that is well defined. This rating is for credits where the primary sources of repayment are not viable at this time or where either the capital or collateral is not adequate to support the loan and the secondary means of repayment do not provide a sufficient level of support to offset the identified weakness but are sufficient to prevent a loss at this time. While these credits do not demonstrate any level of loss at this time, further deterioration would lead to a further downgrade.

Doubtful (RR 9) - a loan with an identified weakness that does not have a valid secondary source of repayment. Generally these credits have an impaired primary source of repayment and secondary sources are not sufficient to prevent a loss in the credit.

Loss (RR 10) - a loan or a portion of a loan that is deemed to be uncollectible.

By definition, credit risk grades OAEM (RR 7), substandard (RR 8), doubtful (RR 9) and loss (RR 10) are criticized loans while substandard (RR 8), doubtful (RR 9) and loss (RR 10) are classified loans. These definitions are standardized by all bank regulatory agencies and are generally equally applied to each individual lending institution. The remaining credit risk grades are considered pass credits and are solely defined by Trustmark.

The credit risk grades represent the probability of default (PD) for an individual credit and as such are not a direct indication of loss given default (LGD). The LGD aspect of the subject risk ratings is neither uniform across the nine primary commercial loan groups or constant between the geographic areas. To account for the variance in the LGD aspects of the risk rate system, the loss expectations for each risk rating is integrated into the allowance for loan loss methodology where the calculated LGD is allotted for each individual risk rating with respect to the individual loan group and unique geographic area. The LGD aspect of the reserve methodology is calculated each quarter as a component of the overall reserve factor for each risk grade by loan group and geographic area.

To enhance this process, loans of a certain size that are rated in one of the criticized categories are routinely reviewed to establish an expectation of loss, if any, and if such examination indicates that the level of reserve is not adequate to cover the expectation of loss, a special reserve or impairment is generally applied.

The distribution of the losses is accomplished by means of a loss distribution model that assigns a loss factor to each risk rating (1 to 9) in each commercial loan pool. A factor is not applied to risk rate 10 (Loss) as loans classified as Losses are not carried on the bank's books over quarter ends as they are charged off within the period that the loss is determined.

The expected loss distribution is spread across the various risk ratings by the perceived level of risk for loss. The nine grade scale described above ranges from a negligible risk of loss to an identified loss across its breadth. The loss distribution factors are graduated through the scale on a basis proportional to the degree of risk that appears manifest in each individual rating and assumes that migration through the loan grading system will occur.

Each loan officer assesses the appropriateness of the internal risk rating assigned to their credits on an ongoing basis. Trustmark's Asset Review area conducts independent credit quality reviews of the majority of the bank's commercial loan portfolio concentrations both on the underlying credit quality of each individual loan portfolio as well as the adherence to bank loan policy and the loan administration process. In general, Asset Review conducts reviews of each lending area within a six to eighteen month window depending on the overall credit quality results of the individual area.

In addition to the ongoing internal risk rate monitoring described above, Trustmark conducts monthly credit quality reviews (CQR) as well as semi-annual analysis and stress testing on all residential real estate development credits and non-owner occupied commercial real estate (CRE) credits of $1.0 million or more as described below:

Trustmark's Credit Quality Review Committee meets monthly and performs the following functions: detailed review and evaluation of all loans of $100 thousand or more that are either delinquent thirty days or more or on nonaccrual, including determination of appropriate risk ratings, accrual status, and appropriate servicing officer; review of risk rate changes for relationships of $100 thousand or more; quarterly review of all nonaccruals less than $100 thousand to determine whether the credit should be charged off, returned to accrual, or remain in nonaccrual status; monthly/quarterly review of continuous action plans for all credits rated seven or worse for relationships of $100 thousand or more; monthly review of all commercial charge-offs of $25 thousand or more for the preceding month.

Residential real estate developments - a development project analysis is performed on all projects regardless of size. Performance of the development is assessed through an evaluation of the number of lots remaining, the payout ratios, and the loan-to-value ratios. Results are stress tested as to absorption and price of lots. This information is reviewed by each senior credit officer for that market to determine the need for any risk rate or accrual status changes.

Non-owner occupied commercial real estate - a cash flow analysis is performed on all projects with an outstanding balance of $1.0 million or more. In addition, credits are stress tested for vacancies and rate sensitivity. Confirmation is obtained that guarantor's financial statements are current, taxes have been paid, and that there are no other issues that need to be addressed. This information is reviewed by each senior credit officer for that market to determine the need for any risk rate or accrual status changes.

Consumer Credits

Loans that do not meet a minimum custom credit score are reviewed quarterly by Management. The Retail Credit Review Committee reviews the volume and percentage of approvals that did not meet the minimum passing custom score by region, individual location, and officer. To assure that Trustmark continues to originate quality loans, this process allows Management to make necessary changes such as changes to underwriting procedures, credit policies, or changes in loan authority to Trustmark personnel.

Trustmark monitors the levels and severity of past due consumer loans on a daily basis through its collection activities. A detailed assessment of consumer loan delinquencies is performed monthly at both a product and market level by delivery channel, which incorporates the perceived level of risk at time of underwriting. Trustmark also monitors its consumer loan delinquency trends by comparing them to quarterly industry averages.

The allowance calculation methodology delineates the consumer loan portfolio into homogeneous pools of loans that contain similar structure, repayment, collateral and risk profile, which include residential mortgage, direct consumer loans, auto finance, credit cards, and overdrafts. For these pools, the historical loss experience is determined by calculating a 20-quarter rolling average and that loss factor is applied to each homogeneous pool to establish the quantitative aspect of the methodology. Where the loss experience does not fully cover the anticipated loss for a pool, an estimate is also applied to each homogeneous pool to establish the qualitative aspect of the methodology. The qualitative portion is the allocation of perceived risks across the loan portfolio to derive the potential losses that exist at the current point in time. This methodology utilizes five separate factors where each factor is made up of unique components that when weighted and combined produce an estimated level of reserve for each of the loan pools. The five factors include economic indicators, performance trends, management experience, lending policy measures, and credit concentrations.

The risk measure for each factor is converted to a scale ranging from 0 (No risk) to 100 (High Risk) to ensure that the combination of such factors is proportional. The determination of the risk measurement for each qualitative factor is done for all four markets combined. The resulting estimated reserve factor is then applied to each pool.

The resulting ratings from the individual factors are weighted and summed to establish the weighted average qualitative factor of a specific loan portfolio. This weighted average qualitative factor is then applied over the five loan pools.

The table below illustrates the carrying amount of LHFI by credit quality indicator at June 30, 2012 and December 31, 2011 ($ in thousands):

			June 30, 2012
			Commercial Loans
			Pass -		Special Mention -		Substandard -		Doubtful -
			Categories 1-6		Category 7		Category 8		Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land loans			$	309,779	$	25,203	$	81,649	$	66	$	416,697
Secured by 1-4 family residential properties				116,265		205		17,110		-		133,580
Secured by nonfarm, nonresidential properties				1,266,578		11,809		112,855		-		1,391,242
Other				180,298		457		5,842		-		186,597
Commercial and industrial loans				1,061,090		36,428		43,013		871		1,141,402
Consumer loans				752		-		-		-		752
Other loans				634,162		-		1,378		137		635,677
			$	3,568,924	$	74,102	$	261,847	$	1,074	$	3,905,947

	Consumer Loans
			Past Due		Past Due Greater
	Current		30-89 Days		Than 90 days		Nonaccrual		Subtotal		Total LHFI
Loans secured by real estate:
Construction, land development and other land loans	$	46,599	$	30	$	-	$	1,023	$	47,652	$	464,349
Secured by 1-4 family residential properties		1,456,889		11,180		1,560		18,656		1,488,285		1,621,865
Secured by nonfarm, nonresidential properties		1,051		-		-		-		1,051		1,392,293
Other		5,754		-		-		25		5,779		192,376
Commercial and industrial loans		857		13		-		10		880		1,142,282
Consumer loans		191,154		4,034		283		495		195,966		196,718
Other loans		4,988		-		-		-		4,988		640,665
	$	1,707,292	$	15,257	$	1,843	$	20,209	$	1,744,601	$	5,650,548

			December 31, 2011
			Commercial Loans
			Pass -		Special Mention -		Substandard -		Doubtful -
			Categories 1-6		Category 7		Category 8		Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land loans			$	308,618	$	26,273	$	90,175	$	116	$	425,182
Secured by 1-4 family residential properties				119,155		142		16,324		-		135,621
Secured by nonfarm, nonresidential properties				1,287,886		26,232		110,472		51		1,424,641
Other				188,772		130		9,312		-		198,214
Commercial and industrial loans				1,048,556		32,046		56,577		405		1,137,584
Consumer loans				643		25		-		-		668
Other loans				600,411		-		1,834		600		602,845
			$	3,554,041	$	84,848	$	284,694	$	1,172	$	3,924,755

	Consumer Loans
			Past Due		Past Due Greater
	Current		30-89 Days		Than 90 days		Nonaccrual		Subtotal		Total LHFI
Loans secured by real estate:
Construction, land development and other land loans	$	47,253	$	353	$	-	$	1,294	$	48,900	$	474,082
Secured by 1-4 family residential properties		1,596,800		8,477		1,306		18,726		1,625,309		1,760,930
Secured by nonfarm, nonresidential properties		1,133		-		-		-		1,133		1,425,774
Other		6,405		201		-		29		6,635		204,849
Commercial and industrial loans		1,626		118		-		37		1,781		1,139,365
Consumer loans		234,593		7,172		498		825		243,088		243,756
Other loans		5,848		35		-		-		5,883		608,728
	$	1,893,658	$	16,356	$	1,804	$	20,911	$	1,932,729	$	5,857,484

Past Due LHFI and LHFS

LHFI past due 90 days or more totaled $37.1 million and $43.6 million at June 30, 2012 and December 31, 2011, respectively. Included in these amounts are $35.3 million and $39.4 million, respectively, of serviced loans eligible for repurchase, which are fully guaranteed by GNMA. GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer's option and without GNMA's prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When Trustmark is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans held for sale, regardless of whether Trustmark intends to exercise the buy-back option. These loans are reported as held for sale with the offsetting liability being reported as short-term borrowings. Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first six months of 2012 or 2011.

The following table provides an aging analysis of past due and nonaccrual LHFI by class at June 30, 2012 and December 31, 2011 ($ in thousands):

	June 30, 2012
	Past Due
			Greater than							Current
	30-89 Days		90 Days (1)			Total		Nonaccrual		Loans		Total LHFI

Loans secured by real estate:
Construction, land development and other land loans	$	7,656	$	-		$	7,656	$	35,260	$	421,433	$	464,349
Secured by 1-4 family residential properties		12,251		1,558			13,809		24,101		1,583,955		1,621,865
Secured by nonfarm, nonresidential properties		12,941		1			12,942		29,496		1,349,855		1,392,293
Other		458		-			458		4,604		187,314		192,376
Commercial and industrial loans		1,632		(1	)		1,631		5,560		1,135,091		1,142,282
Consumer loans		4,035		284			4,319		496		191,903		196,718
Other loans		45		-			45		163		640,457		640,665
Total past due LHFI	$	39,018	$	1,842		$	40,860	$	99,680	$	5,510,008	$	5,650,548

(1)	- Past due greater than 90 days but still accruing interest

	December 31, 2011
	Past Due
			Greater than						Current
	30-89 Days		90 Days (1)		Total		Nonaccrual		Loans		Total LHFI

Loans secured by real estate:
Construction, land development and other land loans	$	1,784	$	1,657	$	3,441	$	40,413	$	430,228	$	474,082
Secured by 1-4 family residential properties		9,755		1,306		11,061		24,348		1,725,521		1,760,930
Secured by nonfarm, nonresidential properties		9,925		-		9,925		23,981		1,391,868		1,425,774
Other		879		-		879		5,871		198,099		204,849
Commercial and industrial loans		1,646		769		2,415		14,148		1,122,802		1,139,365
Consumer loans		7,172		498		7,670		825		235,261		243,756
Other loans		3,104		-		3,104		872		604,752		608,728
Total past due LHFI	$	34,265	$	4,230	$	38,495	$	110,458	$	5,708,531	$	5,857,484

(1)	Past due greater than 90 days but still accruing interest

Allowance for Loan Losses, LHFI

Trustmark's allowance for loan loss methodology for commercial loans is based upon regulatory guidance from its primary regulator and GAAP. The methodology delineates the commercial purpose and commercial construction loan portfolios into nine separate loan types (or pools), which had similar characteristics, such as, repayment, collateral and risk profiles. The nine basic loan pools are further segregated into Trustmark's four key market regions, Florida, Mississippi, Tennessee and Texas, to take into consideration the uniqueness of each market. A 10-point risk rating system is utilized for each separate loan pool to apply a reserve factor consisting of quantitative and qualitative components to determine the needed allowance by each loan type. As a result, there are 360 risk rate factors for commercial loan types. The nine separate pools are segmented below:

Commercial Purpose Loans

Real Estate - Owner Occupied

Real Estate - Non-Owner Occupied

Working Capital

Non-Working Capital

Land

Lots and Development

Political Subdivisions

Commercial Construction Loans

1 to 4 Family

Non-1 to 4 Family

During the third quarter of 2011, Trustmark altered the quantitative factors of the allowance for loan loss methodology to reflect a twelve-quarter rolling average. The quantitative factors utilized in determining the required reserve are intended to reflect a twelve-quarter rolling average, one quarter in arrears, by loan type within each key market region, unless subsequent market factors suggest that a different method is called for. This alteration to Trustmark's methodology allows for a greater sensitivity to current trends, such as economic changes as well as current loss profiles, which creates a more accurate depiction of historical losses. Prior to converting to a twelve-quarter rolling average, the quantitative factors reflected a three-year rolling average for Trustmark's commercial loan book of business.

The qualitative factors are determined through the utilization of eight separate factors made up of unique characteristics that, when weighted and combined, produce an estimated level of reserve for each loan type. The qualitative factors considered are the following:

National and regional economic trends and conditions

Impact of recent performance trends

Experience, ability and effectiveness of management

Adherence to Trustmark's loan policies, procedures and internal controls

Collateral, financial and underwriting exception trends

Credit concentrations

Acquisitions

Catastrophe

The measure for each qualitative factor is converted to a scale ranging from 0 (No risk) to 100 (High Risk), other than the last two factors, which are applied on a dollar-for-dollar basis, to ensure that the combination of such factors is proportional. The resulting ratings from the individual factors are weighted and summed to establish the weighted average qualitative factor of a specific loan portfolio within each key market region. This weighted-average qualitative factor is then distributed over the nine primary loan pools within each key market region based on the ranking by risk of each.

Changes in the allowance for loan losses, LHFI were as follows ($ in thousands):

	Six Months Ended June 30,
	2012			2011
Balance at January 1,	$	89,518		$	93,510
Loans charged-off		(14,640	)		(28,637	)
Recoveries		5,988			6,320
Net charge-offs		(8,652	)		(22,317	)
Provision for loan losses, LHFI		3,943			15,653
Balance at June 30,	$	84,809		$	86,846

The following tables detail the balance in the allowance for loan losses, LHFI by portfolio segment at June 30, 2012 and 2011, respectively ($ in thousands):

	2012
	Balance							Provision for			Balance
	January 1,		Charge-offs			Recoveries		Loan Losses			June 30,
Loans secured by real estate:
Construction, land development and other land loans	$	27,220	$	(2,765	)	$	-	$	(190	)	$	24,265
Secured by 1-4 family residential properties		12,650		(2,578	)		252		2,567			12,891
Secured by nonfarm, nonresidential properties		24,358		(2,867	)		-		3,253			24,744
Other		3,079		(1,602	)		-		225			1,702
Commercial and industrial loans		15,868		(514	)		1,058		(552	)		15,860
Consumer loans		3,656		(1,644	)		2,856		(1,883	)		2,985
Other loans		2,687		(2,670	)		1,822		523			2,362
Total allowance for loan losses, LHFI	$	89,518	$	(14,640	)	$	5,988	$	3,943		$	84,809

	Disaggregated by Impairment Method
	Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land loans	$	4,830	$	19,435	$	24,265
Secured by 1-4 family residential properties		1,270		11,621		12,891
Secured by nonfarm, nonresidential properties		5,997		18,747		24,744
Other		389		1,313		1,702
Commercial and industrial loans		1,234		14,626		15,860
Consumer loans		5		2,980		2,985
Other loans		44		2,318		2,362
Total allowance for loan losses, LHFI	$	13,769	$	71,040	$	84,809

	2011
	Balance							Provision for			Balance
	January 1,		Charge-offs			Recoveries		Loan Losses			June 30,
Loans secured by real estate:
Construction, land development and other land loans	$	35,562	$	(12,286	)	$	-	$	7,925		$	31,201
Secured by 1-4 family residential properties		13,051		(4,819	)		388		3,222			11,842
Secured by nonfarm, nonresidential properties		20,980		(2,818	)		-		2,731			20,893
Other		1,582		(577	)		-		775			1,780
Commercial and industrial loans		14,775		(2,948	)		1,159		1,146			14,132
Consumer loans		5,400		(3,048	)		3,043		(1,018	)		4,377
Other loans		2,160		(2,141	)		1,730		872			2,621
Total allowance for loan losses, LHFI	$	93,510	$	(28,637	)	$	6,320	$	15,653		$	86,846

	Disaggregated by Impairment Method
	Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land loans	$	4,207	$	26,994	$	31,201
Secured by 1-4 family residential properties		630		11,212		11,842
Secured by nonfarm, nonresidential properties		1,291		19,602		20,893
Other		45		1,735		1,780
Commercial and industrial loans		1,812		12,320		14,132
Consumer loans		12		4,365		4,377
Other loans		50		2,571		2,621
Total allowance for loan losses, LHFI	$	8,047	$	78,799	$	86,846