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. Other real estate is revalued on an annual basis or more often if market conditions necessitate. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged against an other real estate specific reserve or net income in ORE/Foreclosure expense, if a reserve does not exist. At September 30, 2013, Trustmark's geographic other real estate distribution was concentrated primarily in its five key market regions: Alabama, 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, net on other real estate, excluding covered other real estate, were as follows ($ in thousands):

	Nine Months Ended September 30,
	2013			2012
Balance at beginning of period	$	78,189		$	79,053
Additions (1)		73,890			32,428
Disposals		(29,605	)		(24,248	)
Writedowns		(6,145	)		(4,758	)
Balance at end of period	$	116,329		$	82,475

Loss, net on the sale of other real estate included in ORE/Foreclosure expense	$	(110	)	$	(175	)

(1) Includes $40.1 million of other real estate acquired from BancTrust at September 30, 2013, and $2.6 million of other real estate acquired from Bay Bank at September 30, 2012.

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,
	2013		2012
Construction, land development and other land properties	$	66,200	$	46,957
1-4 family residential properties		15,280		8,134
Nonfarm, nonresidential properties		32,249		22,760
Other real estate properties		2,600		338
Total other real estate, excluding covered other real estate	$	116,329	$	78,189

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,
	2013		2012
Alabama	$	25,308	$	-
Florida		39,198		18,569
Mississippi (1)		25,439		27,771
Tennessee (2)		14,615		17,589
Texas		11,769		14,260
Total other real estate, excluding covered other real estate	$	116,329	$	78,189

(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 is 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 are credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

For the nine months ended September 30, 2013 and 2012, changes and gains, net on covered other real estate were as follows ($ in thousands):

	Nine Months Ended September 30,
	2013			2012
Balance at beginning of period	$	5,741		$	6,331
Transfers from covered loans		1,380			1,424
FASB ASC 310-30 adjustment for the residual recorded investment		(541	)		(112	)
Net transfers from covered loans		839			1,312
Disposals		(848	)		(1,673	)
Writedowns		(640	)		(248	)
Balance at end of period	$	5,092		$	5,722

Gain, net on the sale of covered other real estate included in ORE/Foreclosure expense	$	47		$	440

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

	September 30,		December 31,
	2013		2012
Construction, land development and other land properties	$	733	$	1,284
1-4 family residential properties		1,777		1,306
Nonfarm, nonresidential properties		2,525		3,151
Other real estate properties		57		-
Total covered other real estate	$	5,092	$	5,741