Note 4 – Acquired Loans

At June 30, 2015 and December 31, 2014, acquired loans consisted of the following ($ in thousands):

	June 30, 2015				December 31, 2014
	Noncovered		Covered		Noncovered		Covered
Loans secured by real estate:
Construction, land development and other land	$	50,867	$	904	$	58,309	$	1,197
Secured by 1-4 family residential properties		101,027		11,080		116,920		13,180
Secured by nonfarm, nonresidential properties		168,698		5,206		202,323		7,672
Other real estate secured		25,666		1,622		27,813		1,096
Commercial and industrial loans		73,732		371		88,256		277
Consumer loans		7,273		-		9,772		-
Other loans		19,897		56		22,390		204
Acquired loans		447,160		19,239		525,783		23,626
Less allowance for loan losses, acquired loans		11,927		702		10,541		1,518
Net acquired loans	$	435,233	$	18,537	$	515,242	$	22,108

The following table presents changes in the net carrying value of the acquired loans for the periods presented ($ in thousands):

	Noncovered						Covered
	Acquired Impaired			Acquired Not ASC 310-30 (1)			Acquired Impaired			Acquired Not ASC 310-30 (1)
Carrying value, net at January 1, 2014	$	639,656		$	123,085		$	30,166		$	1,663
Accretion to interest income		44,575			1,706			4,052			1
Payments received, net		(216,378	)		(42,284	)		(12,396	)		(30	)
Other (2)		(29,724	)		(2,102	)		(1,733	)		(484	)
Less change in allowance for loan losses, acquired loans		(3,978	)		686			415			454
Carrying value, net at December 31, 2014		434,151			81,091			20,504			1,604
Accretion to interest income		17,140			453			1,309			-
Payments received, net		(89,149	)		(7,635	)		(5,638	)		(72	)
Other (2)		568			-			14			-
Less change in allowance for loan losses, acquired loans		(1,386	)		-			816			-
Carrying value, net at June 30, 2015	$	361,324		$	73,909		$	17,005		$	1,532

(1)	"Acquired Not ASC 310-30" loans consist of revolving credit agreements and commercial leases that are not in scope for FASB ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality."

(2)	Includes miscellaneous timing adjustments as well as acquired loan terminations through foreclosure, charge-off, pool recovery and other terminations.

Under FASB ASC Topic 310-30, the accretable yield is the excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable. The following table presents changes in the accretable yield for the periods presented ($ in thousands):

	Six Months Ended June 30,
	2015			2014
Accretable yield at beginning of period	$	(77,149	)	$	(109,006	)
Accretion to interest income		18,449			25,518
Disposals		4,700			10,791
Reclassification to / (from) nonaccretable difference (1)		(9,943	)		(20,094	)
Accretable yield at end of period	$	(63,943	)	$	(92,791	)

(1)	Reclassifications from nonaccretable difference are due to lower loss expectations and improvements in expected cash flows.

The following tables present the components of the allowance for loan losses on acquired loans for the six months ended June 30, 2015 and 2014 ($ in thousands):

	Noncovered			Covered			Total
Balance at January 1, 2015	$	10,541		$	1,518		$	12,059
Provision for loan losses, acquired loans		1,576			(404	)		1,172
Loans charged-off		(2,568	)		(450	)		(3,018	)
Recoveries		2,378			38			2,416
Net charge-offs		(190	)		(412	)		(602	)
Balance at June 30, 2015	$	11,927		$	702		$	12,629

	Noncovered			Covered			Total
Balance at January 1, 2014	$	7,249		$	2,387		$	9,636
Provision for loan losses, acquired loans		3,899			(52	)		3,847
Loans charged-off		(2,152	)		(865	)		(3,017	)
Recoveries		774			(61	)		713
Net charge-offs		(1,378	)		(926	)		(2,304	)
Balance at June 30, 2014	$	9,770		$	1,409		$	11,179

As discussed in Note 3 - Loans Held for Investment (LHFI) and Allowance for Loan Losses, LHFI, 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 segregate the level of risk across the ten unique risk ratings. These credit quality measures are unique to commercial loans. Credit quality for consumer loans is based on individual credit scores, aging status of the loan and payment activity.

The tables below illustrate the carrying amount of acquired loans by credit quality indicator at June 30, 2015 and December 31, 2014 ($ in thousands):

	June 30, 2015
		Commercial Loans
		Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Noncovered Loans:
Loans secured by real estate:
Construction, land development and other land		$	18,347	$	169	$	25,076	$	4,060	$	47,652
Secured by 1-4 family residential properties			24,552		655		6,419		371		31,997
Secured by nonfarm, nonresidential properties			131,802		3,309		32,888		699		168,698
Other real estate secured			20,496		88		4,297		779		25,660
Commercial and industrial loans			50,299		888		19,571		2,974		73,732
Consumer loans			-		-		-		-		-
Other loans			17,041		-		2,852		-		19,893
Total noncovered loans			262,537		5,109		91,103		8,883		367,632

Covered Loans: (1)
Loans secured by real estate:
Construction, land development and other land			262		-		436		119		817
Secured by 1-4 family residential properties			995		149		464		-		1,608
Secured by nonfarm, nonresidential properties			4,237		80		704		-		5,021
Other real estate secured			828		4		285		15		1,132
Commercial and industrial loans			327		22		22		-		371
Other loans			55		-		-		-		55
Total covered loans			6,704		255		1,911		134		9,004
Total acquired loans		$	269,241	$	5,364	$	93,014	$	9,017	$	376,636

	Consumer Loans
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total Acquired Loans
Noncovered Loans:
Loans secured by real estate:
Construction, land development and other land	$	3,088	$	58	$	69	$	-	$	3,215	$	50,867
Secured by 1-4 family residential properties		65,086		950		2,845		149		69,030		101,027
Secured by nonfarm, nonresidential properties		-		-		-		-		-		168,698
Other real estate secured		6		-		-		-		6		25,666
Commercial and industrial loans		-		-		-		-		-		73,732
Consumer loans		7,156		89		28		-		7,273		7,273
Other loans		4		-		-		-		4		19,897
Total noncovered loans		75,340		1,097		2,942		149		79,528		447,160

Covered Loans: (1)
Loans secured by real estate:
Construction, land development and other land		87		-		-		-		87		904
Secured by 1-4 family residential properties		8,455		516		501		-		9,472		11,080
Secured by nonfarm, nonresidential properties		185		-		-		-		185		5,206
Other real estate secured		490		-		-		-		490		1,622
Commercial and industrial loans		-		-		-		-		-		371
Other loans		1		-		-		-		1		56
Total covered loans		9,218		516		501		-		10,235		19,239
Total acquired loans	$	84,558	$	1,613	$	3,443	$	149	$	89,763	$	466,399

(1)	Total dollar balances are presented in this table; however, these loans are covered by the loss-share agreement with the FDIC. TNB is at risk for only 20% of the losses incurred on these loans.

	December 31, 2014
		Commercial Loans
		Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Noncovered Loans:
Loans secured by real estate:
Construction, land development and other land		$	20,224	$	280	$	28,339	$	5,821	$	54,664
Secured by 1-4 family residential properties			30,796		760		8,466		388		40,410
Secured by nonfarm, nonresidential properties			157,753		3,452		39,408		1,710		202,323
Other real estate secured			22,754		92		4,864		95		27,805
Commercial and industrial loans			64,720		17		19,706		3,813		88,256
Consumer loans			-		-		-		-		-
Other loans			19,706		45		2,617		-		22,368
Total noncovered loans			315,953		4,646		103,400		11,827		435,826

Covered Loans: (1)
Loans secured by real estate:
Construction, land development and other land			-		-		955		102		1,057
Secured by 1-4 family residential properties			194		235		1,045		-		1,474
Secured by nonfarm, nonresidential properties			4,419		88		2,879		-		7,386
Other real estate secured			-		108		426		2		536
Commercial and industrial loans			145		24		108		-		277
Other loans			204		-		-		-		204
Total covered loans			4,962		455		5,413		104		10,934
Total acquired loans		$	320,915	$	5,101	$	108,813	$	11,931	$	446,760

	Consumer Loans
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total Acquired Loans
Noncovered Loans:
Loans secured by real estate:
Construction, land development and other land	$	3,338	$	25	$	282	$	-	$	3,645	$	58,309
Secured by 1-4 family residential properties		71,316		2,335		2,742		117		76,510		116,920
Secured by nonfarm, nonresidential properties		-		-		-		-		-		202,323
Other real estate secured		8		-		-		-		8		27,813
Commercial and industrial loans		-		-		-		-		-		88,256
Consumer loans		9,634		114		24		-		9,772		9,772
Other loans		22		-		-		-		22		22,390
Total noncovered loans		84,318		2,474		3,048		117		89,957		525,783

Covered Loans: (1)
Loans secured by real estate:
Construction, land development and other land		140		-		-		-		140		1,197
Secured by 1-4 family residential properties		10,925		473		308		-		11,706		13,180
Secured by nonfarm, nonresidential properties		286		-		-		-		286		7,672
Other real estate secured		525		-		35		-		560		1,096
Commercial and industrial loans		-		-		-		-		-		277
Other loans		-		-		-		-		-		204
Total covered loans		11,876		473		343		-		12,692		23,626
Total acquired loans	$	96,194	$	2,947	$	3,391	$	117	$	102,649	$	549,409

(1)	Total dollar balances are presented in this table; however, these loans are covered by the loss-share agreement with the FDIC. TNB is at risk for only 20% of the losses incurred on these loans.

At June 30, 2015 and December 31, 2014, there were no acquired impaired loans accounted for under FASB ASC Topic 310-30 classified as nonaccrual loans. At June 30, 2015, approximately $1.6 million of acquired loans not accounted for under FASB ASC Topic 310-30 were classified as nonaccrual loans, compared to approximately $1.1 million of acquired loans at December 31, 2014.

The following tables provide an aging analysis of contractually past due and nonaccrual acquired loans, by class at June 30, 2015 and December 31, 2014 ($ in thousands):

	June 30, 2015
	Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual (2)		Current Loans		Total Acquired Loans
Noncovered loans:
Loans secured by real estate:
Construction, land development and other land	$	579	$	29	$	17,158	$	17,766	$	141	$	32,960	$	50,867
Secured by 1-4 family residential properties		842		386		4,804		6,032		434		94,561		101,027
Secured by nonfarm, nonresidential properties		4,194		346		7,819		12,359		-		156,339		168,698
Other real estate secured		-		-		693		693		-		24,973		25,666
Commercial and industrial loans		755		102		237		1,094		824		71,814		73,732
Consumer loans		77		12		28		117		-		7,156		7,273
Other loans		-		-		-		-		161		19,736		19,897
Total noncovered loans		6,447		875		30,739		38,061		1,560		407,539		447,160

Covered loans:
Loans secured by real estate:
Construction, land development and other land		-		-		149		149		-		755		904
Secured by 1-4 family residential properties		268		248		654		1,170		-		9,910		11,080
Secured by nonfarm, nonresidential properties		458		-		-		458		-		4,748		5,206
Other real estate secured		-		-		174		174		-		1,448		1,622
Commercial and industrial loans		3		-		-		3		65		303		371
Other loans		-		-		-		-		-		56		56
Total covered loans		729		248		977		1,954		65		17,220		19,239
Total acquired loans	$	7,176	$	1,123	$	31,716	$	40,015	$	1,625	$	424,759	$	466,399

(1)	Past due 90 days or more but still accruing interest.

(2)	Acquired loans not accounted for under FASB ASC Topic 310-30.

	December 31, 2014
	Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual (2)		Current Loans		Total Acquired Loans
Noncovered loans:
Loans secured by real estate:
Construction, land development and other land	$	246	$	7	$	21,985	$	22,238	$	194	$	35,877	$	58,309
Secured by 1-4 family residential properties		2,576		981		5,162		8,719		422		107,779		116,920
Secured by nonfarm, nonresidential properties		89		865		13,275		14,229		-		188,094		202,323
Other real estate secured		-		-		604		604		-		27,209		27,813
Commercial and industrial loans		334		128		1,099		1,561		461		86,234		88,256
Consumer loans		86		29		24		139		-		9,633		9,772
Other loans		-		-		-		-		-		22,390		22,390
Total noncovered loans		3,331		2,010		42,149		47,490		1,077		477,216		525,783

Covered loans:
Loans secured by real estate:
Construction, land development and other land		-		-		376		376		-		821		1,197
Secured by 1-4 family residential properties		253		296		477		1,026		-		12,154		13,180
Secured by nonfarm, nonresidential properties		239		488		-		727		-		6,945		7,672
Other real estate secured		-		-		368		368		-		728		1,096
Commercial and industrial loans		-		-		42		42		67		168		277
Other loans		-		-		-		-		-		204		204
Total covered loans		492		784		1,263		2,539		67		21,020		23,626
Total acquired loans	$	3,823	$	2,794	$	43,412	$	50,029	$	1,144	$	498,236	$	549,409

(1)	Past due 90 days or more but still accruing interest.

(2)	Acquired loans not accounted for under FASB ASC Topic 310-30.