Note 7 –

Other Real Estate and Covered Other Real Estate

Other Real Estate, excluding Covered Other Real Estate

Other real estate, excluding covered other real estate, 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 September 30, 2012, Trustmark's geographic loan distribution was concentrated primarily in its four key market regions, Florida, Mississippi, Tennessee and Texas. The ultimate recovery of a substantial portion of the carrying amount of other real estate, excluding covered other real estate, is susceptible to changes in market conditions in these areas.

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

	Nine Months Ended September 30,
	2012			2011
Balance at beginning of period	$	79,053		$	86,704
Additions		32,428			48,975
Disposals		(24,248	)		(35,234	)
Writedowns		(4,758	)		(10,848	)
Balance at end of period	$	82,475		$	89,597

(Loss) gain, net on the sale of other real estate, excluding covered othe real estate included in ORE/Foreclosure expenses	$	(175	)	$	474

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

	September 30,		December 31,
	2012		2011
Construction, land development and other land properties	$	52,356	$	53,834
1-4 family residential properties		8,251		10,557
Nonfarm, nonresidential properties		21,530		13,883
Other real estate properties		338		779
Total other real estate, excluding covered other real estate	$	82,475	$	79,053

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

	September 30,		December 31,
	2012		2011
Florida	$	22,340	$	29,963
Mississippi (1)		27,113		19,483
Tennessee (2)		18,545		16,879
Texas		14,477		12,728
Total other real estate, excluding covered other real estate	$	82,475	$	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 an independent appraisal 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 $7.5 million in covered other real estate. For the nine months ended September 30, 2012, changes and gains, net on covered other real estate were as follows ($ in thousands):

Balance at January 1, 2012	$	6,331
Transfers from covered loans		1,424
FASB ASC 310-30 adjustment for the residual recorded investment		(112	)
Net transfers from covered loans		1,312
Disposals		(1,673	)
Writedowns		(248	)
Balance at September 30, 2012	$	5,722

Gain, net on the sale of covered other real estate included in ORE/Foreclosure expenses	$	440

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

	September 30,		December 31,
	2012		2011
Construction, land development and other land properties	$	1,284	$	1,304
1-4 family residential properties		1,293		889
Nonfarm, nonresidential properties		3,145		4,022
Other real estate properties		-		116
Total covered other real estate	$	5,722	$	6,331