Note 3 – Loans Held for Investment (LHFI) and Allowance for Loan Losses, LHFI

At March 31, 2016 and December 31, 2015, LHFI consisted of the following ($ in thousands):

	March 31, 2016		December 31, 2015
Loans secured by real estate:
Construction, land development and other land	$	697,500	$	824,723
Secured by 1-4 family residential properties		1,640,015		1,649,501
Secured by nonfarm, nonresidential properties		1,893,240		1,736,476
Other real estate secured		273,752		211,228
Commercial and industrial loans		1,368,464		1,343,211
Consumer loans		164,544		169,135
State and other political subdivision loans		787,049		734,615
Other loans		443,458		422,496
LHFI		7,268,022		7,091,385
Less allowance for loan losses, LHFI		69,668		67,619
Net LHFI	$	7,198,354	$	7,023,766

Loan Concentrations

Trustmark does not have any loan concentrations other than those reflected in the preceding table, which exceed 10% of total LHFI. At March 31, 2016, Trustmark’s geographic loan distribution was concentrated primarily in its five key market regions: Alabama, Florida, Mississippi, Tennessee and Texas. Accordingly, the ultimate collectability of a substantial portion of these loans is susceptible to changes in market conditions in these areas.

Nonaccrual/Impaired LHFI

At March 31, 2016 and December 31, 2015, the carrying amounts of nonaccrual LHFI were $70.7 million and $55.3 million, respectively. Included in these amounts were $6.9 million and $7.4 million, respectively, of nonaccrual LHFI classified as troubled debt restructurings (TDRs). No material interest income was recognized in the income statement on nonaccrual LHFI for each of the periods ended March 31, 2016 and 2015.

Trustmark considers all nonaccrual LHFI to be impaired loans. All commercial nonaccrual LHFI (including those classified as TDRs) over $500 thousand are specifically evaluated for impairment (specifically evaluated impaired LHFI) using a fair value approach. The remaining nonaccrual LHFI, which primarily consist of consumer loans secured by 1-4 family residential property, are not specifically reviewed. Consumer loans secured by 1-4 family residential property are generally charged off or written down when the credit becomes severely delinquent and the balance exceeds the fair value of the property less costs to sell.

At March 31, 2016 and December 31, 2015, specifically evaluated impaired LHFI totaled $41.1 million and $26.5 million, respectively. Trustmark’s specifically evaluated impaired LHFI are primarily collateral dependent loans. Fair value estimates for collateral dependent loans are derived from appraised values based on the current market value or as is value of the collateral, normally from recently received and reviewed appraisals. Current appraisals are ordered on an annual basis based on the inspection date. 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. These appraisals are reviewed by Trustmark’s Appraisal Review Department to ensure they are acceptable, and values are adjusted down for costs associated with asset disposal. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated. At the time a specifically evaluated impaired LHFI is deemed to be impaired, the full difference between book value and the most likely estimate of the collateral’s net realizable value is charged off. Charge-offs related to specifically evaluated impaired LHFI totaled $712 thousand and $234 thousand for the first three months of 2016 and 2015, respectively. As subsequent events dictate and estimated net realizable values decline, required reserves may be established or further adjustments recorded. At March 31, 2016 and December 31, 2015, reserves related to specifically evaluated impaired LHFI totaled $9.5 million and $7.0 million, respectively. Provision expense on specifically evaluated impaired LHFI totaled $551 thousand for the first three months of 2016 compared to $825 thousand for the first three months of 2015.

At March 31, 2016 and December 31, 2015, impaired LHFI, excluding the specifically evaluated impaired LHFI, totaled $29.6 million and $28.8 million, respectively. In addition, these impaired LHFI had allocated allowance for loan losses of $1.9 million and $2.0 million at the end of the respective periods. No material interest income was recognized in the income statement on impaired LHFI for each of the periods ended March 31, 2016 and 2015.

The following tables detail LHFI individually and collectively evaluated for impairment at March 31, 2016 and December 31, 2015 ($ in thousands):

	March 31, 2016
	LHFI Evaluated for Impairment
	Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land	$	6,308	$	691,192	$	697,500
Secured by 1-4 family residential properties		23,660		1,616,355		1,640,015
Secured by nonfarm, nonresidential properties		22,141		1,871,099		1,893,240
Other real estate secured		93		273,659		273,752
Commercial and industrial loans		17,827		1,350,637		1,368,464
Consumer loans		86		164,458		164,544
State and other political subdivision loans		—		787,049		787,049
Other loans		579		442,879		443,458
Total	$	70,694	$	7,197,328	$	7,268,022

	December 31, 2015
	LHFI Evaluated for Impairment
	Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land	$	6,123	$	818,600	$	824,723
Secured by 1-4 family residential properties		23,079		1,626,422		1,649,501
Secured by nonfarm, nonresidential properties		17,800		1,718,676		1,736,476
Other real estate secured		145		211,083		211,228
Commercial and industrial loans		7,622		1,335,589		1,343,211
Consumer loans		31		169,104		169,135
State and other political subdivision loans		—		734,615		734,615
Other loans		512		421,984		422,496
Total	$	55,312	$	7,036,073	$	7,091,385

At March 31, 2016 and December 31, 2015, the carrying amount of LHFI individually evaluated for impairment consisted of the following ($ in thousands):

	March 31, 2016
	LHFI
	Unpaid Principal Balance		With No Related Allowance Recorded		With an Allowance Recorded		Total Carrying Amount		Related Allowance		Average Recorded Investment
Loans secured by real estate:
Construction, land development and other land	$	9,512	$	3,331	$	2,977	$	6,308	$	736	$	6,216
Secured by 1-4 family residential properties		28,409		377		23,283		23,660		1,219		23,369
Secured by nonfarm, nonresidential properties		24,784		7,411		14,730		22,141		4,374		19,971
Other real estate secured		109		—		93		93		14		119
Commercial and industrial loans		19,964		1,020		16,807		17,827		4,890		12,724
Consumer loans		91		—		86		86		1		59
State and other political subdivision loans		—		—		—		—		—		—
Other loans		721		—		579		579		179		546
Total	$	83,590	$	12,139	$	58,555	$	70,694	$	11,413	$	63,004

	December 31, 2015
	LHFI
	Unpaid Principal Balance		With No Related Allowance Recorded		With an Allowance Recorded		Total Carrying Amount		Related Allowance		Average Recorded Investment
Loans secured by real estate:
Construction, land development and other land	$	11,113	$	3,395	$	2,728	$	6,123	$	909	$	9,995
Secured by 1-4 family residential properties		27,678		283		22,796		23,079		1,230		24,350
Secured by nonfarm, nonresidential properties		20,387		8,037		9,763		17,800		3,402		21,758
Other real estate secured		160		—		145		145		15		732
Commercial and industrial loans		9,880		1,137		6,485		7,622		3,304		9,863
Consumer loans		34		—		31		31		—		59
State and other political subdivision loans		—		—		—		—		—		—
Other loans		642		—		512		512		128		570
Total	$	69,894	$	12,852	$	42,460	$	55,312	$	8,988	$	67,327

A TDR occurs when a borrower is experiencing financial difficulties, and for related economic or legal reasons, a concession is granted to the borrower that Trustmark would not otherwise consider. Whatever the form of concession that might be granted by Trustmark, Management’s objective is to enhance collectability by obtaining more cash or other value from the borrower or by increasing the probability of receipt by granting the concession than by not granting it. Other concessions may arise from court proceedings or may be imposed by law. In addition, TDRs also include those credits that are extended or renewed to a borrower who is not able to obtain funds from sources other than Trustmark at a market interest rate for new debt with similar risk.

All loans whose terms have been modified in a troubled debt restructuring are evaluated for impairment under FASB ASC Topic 310. Accordingly, Trustmark measures any loss on the restructuring in accordance with that guidance. A TDR in which Trustmark receives physical possession of the borrower’s assets, regardless of whether formal foreclosure or repossession proceedings take place, is accounted for in accordance with FASB ASC Subtopic 310-40, “Troubled Debt Restructurings by Creditors.” Thus, the loan is treated as if assets have been received in satisfaction of the loan and reported as a foreclosed asset. At March 31, 2016 and December 31, 2015, Trustmark held $921 thousand and $1.0 million, respectively, of foreclosed residential real estate as a result of foreclosure or in substance repossession of consumer mortgage LHFI classified as TDRs. Consumer mortgage LHFI classified as TDRs in the process of formal foreclosure proceedings at March 31, 2016 and December 31, 2015 totaled $61 thousand and $83 thousand, respectively.

A TDR may be returned to accrual status if Trustmark is reasonably assured of repayment of principal and interest under the modified terms and the borrower has demonstrated sustained performance under those terms for a period of at least six months. Otherwise, the restructured loan must remain on nonaccrual.

At March 31, 2016 and 2015, LHFI classified as TDRs totaled $9.2 million and $10.8 million, respectively, and were primarily comprised of credits with interest-only payments for an extended period of time which totaled $5.7 million and $6.9 million, respectively. The remaining TDRs at March 31, 2016 and 2015 resulted from real estate loans discharged through Chapter 7 bankruptcy that were not reaffirmed or from payment or maturity extensions.

For TDRs, Trustmark had a related loan loss allowance of $1.7 million and $1.8 million at March 31, 2016 and 2015, respectively. LHFI classified as 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. There were no specific charge-offs related to TDRs for the three months ended March 31, 2016 and 2015.

The following tables illustrate the impact of modifications classified as TDRs as well as those TDRs modified within the last 12 months for which there was a payment default during the period for the periods presented ($ in thousands):

	Three Months Ended March 31,
	2016						2015
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Loans secured by 1-4 family residential properties		2	$	71	$	71		6	$	378	$	378

	Three Months Ended March 31,
	2016				2015
TDRs that Subsequently Defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Loans secured by 1-4 family residential properties		1	$	17		2	$	183

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.

The following tables detail LHFI classified as TDRs by loan type at March 31, 2016 and 2015 ($ in thousands):

	March 31, 2016
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	845	$	845
Secured by 1-4 family residential properties		1,444		2,086		3,530
Secured by nonfarm, nonresidential properties		799		3,566		4,365
Other real estate secured		—		—		—
Commercial and industrial loans		—		448		448
Total TDRs	$	2,243	$	6,945	$	9,188

	March 31, 2015
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	3,086	$	3,086
Secured by 1-4 family residential properties		1,477		3,605		5,082
Secured by nonfarm, nonresidential properties		834		1,121		1,955
Other real estate secured		—		149		149
Commercial and industrial loans		—		511		511
Total TDRs	$	2,311	$	8,472	$	10,783

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 indicators, 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 credit file completion and financial statement exceptions, underwriting, collateral documentation and compliance with law as shown below:

Credit File Completeness and Financial Statement Exceptions – evaluates the quality and condition of credit files in terms of content, completeness and organization and focuses on efforts to obtain and document sufficient information to determine the quality and status of credits. Also included is an evaluation of the systems/procedures used to insure compliance with policy.

Underwriting – evaluates whether credits are adequately analyzed, appropriately structured and properly approved within loan policy requirements. 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 underwriting and other policy exceptions within a loan portfolio.

Collateral Documentation – focuses on the adequacy of documentation to perfect Trustmark’s collateral position and substantiate collateral value. Collateral exceptions measure the level of documentation exceptions within a loan portfolio. Collateral exceptions occur when certain collateral documentation is either not present, is not considered current or has expired.

Compliance with Law – focuses on underwriting, documentation, approval and reporting in compliance with banking laws and regulations. Primary emphasis is directed to the 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 (Special Mention) - (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 the time of evaluation 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. Loss potential exists in the aggregate amount of substandard loans but does not necessarily exist in individual loans.

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. The exact amount of the loss has not been determined at this time.

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

By definition, credit risk grades special mention (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.

Each commercial loan is assigned a credit risk grade that is an indication for the likelihood of default and is not a direct indication of loss at default. The loss at default 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 loss at default aspects of the risk rating system, the loss expectations for each risk rating is integrated into the allowance for loan loss methodology where the calculated loss at default is allotted for each individual risk rating with respect to the individual loan group and unique geographic area. The loss at default 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 as loans classified as Losses are not carried on Trustmark’s books over quarter-end 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 Trustmark’s commercial loan portfolio concentrations both on the underlying credit quality of each individual loan portfolio as well as the adherence to Trustmark’s 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’s Credit Quality Review Committee meets monthly and performs a review of all loans of $100 thousand or more that are either delinquent thirty days or more or on nonaccrual. This review includes recommendations regarding risk ratings, accrual status, charge-offs and appropriate servicing officer as well as evaluation of problem credits for determination of TDRs. Quarterly, the Credit Quality Review Committee reviews and modifies continuous action plans for all credits risk rated seven or worse for relationships of $100 thousand or more. In addition, the Credit Quality Review Committee performs the following reviews on an annual basis:

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, payout ratios, and loan-to-value ratios. Results are stress tested as to the capacity to absorb losses and price of lots. This analysis is reviewed by each senior credit officer for the respective 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 financial statements are current, taxes have been paid and there are no other issues that need to be addressed. This analysis is reviewed by each senior credit officer in the respective market to determine the need for any risk rate or accrual status changes.

Consumer Credits

Consumer LHFI 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 revisions to underwriting procedures and credit policies, or changes in loan authority to Trustmark personnel.

Trustmark monitors the levels and severity of past due consumer LHFI on a daily basis through its collection activities. A detailed assessment of consumer LHFI 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 LHFI delinquency trends by comparing them to quarterly industry averages.

The tables below illustrate the carrying amount of LHFI by credit quality indicator at March 31, 2016 and December 31, 2015 ($ in thousands):

	March 31, 2016
		Commercial LHFI
		Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land		$	617,582	$	—	$	14,191	$	526	$	632,299
Secured by 1-4 family residential properties			119,537		552		8,194		356		128,639
Secured by nonfarm, nonresidential properties			1,832,682		1,487		57,525		673		1,892,367
Other real estate secured			271,453		—		1,283		—		272,736
Commercial and industrial loans			1,312,644		810		54,237		773		1,368,464
Consumer loans			—		—		—		—		—
State and other political subdivision loans			769,592		7,000		10,456		—		787,048
Other loans			435,973		—		2,459		445		438,877
Total		$	5,359,463	$	9,849	$	148,345	$	2,773	$	5,520,430

	Consumer LHFI
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	64,411	$	251	$	54	$	485	$	65,201	$	697,500
Secured by 1-4 family residential properties		1,483,060		6,535		403		21,378		1,511,376		1,640,015
Secured by nonfarm, nonresidential properties		873		—		—		—		873		1,893,240
Other real estate secured		1,016		—		—		—		1,016		273,752
Commercial and industrial loans		—		—		—		—		—		1,368,464
Consumer loans		162,973		1,332		154		85		164,544		164,544
State and other political subdivision loans		1		—		—		—		1		787,049
Other loans		4,581		—		—		—		4,581		443,458
Total	$	1,716,915	$	8,118	$	611	$	21,948	$	1,747,592	$	7,268,022

	December 31, 2015
		Commercial LHFI
		Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land		$	746,227	$	—	$	15,637	$	529	$	762,393
Secured by 1-4 family residential properties			125,268		345		7,525		190		133,328
Secured by nonfarm, nonresidential properties			1,680,846		2,031		52,485		361		1,735,723
Other real estate secured			205,097		—		4,768		—		209,865
Commercial and industrial loans			1,295,760		9,473		37,284		694		1,343,211
Consumer loans			—		—		—		—		—
State and other political subdivision loans			713,616		12,478		8,521		—		734,615
Other loans			414,089		183		2,663		375		417,310
Total		$	5,180,903	$	24,510	$	128,883	$	2,149	$	5,336,445

	Consumer LHFI
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	62,158	$	146	$	—	$	26	$	62,330	$	824,723
Secured by 1-4 family residential properties		1,485,914		7,565		2,058		20,636		1,516,173		1,649,501
Secured by nonfarm, nonresidential properties		753		—		—		—		753		1,736,476
Other real estate secured		1,363		—		—		—		1,363		211,228
Commercial and industrial loans		—		—		—		—		—		1,343,211
Consumer loans		166,681		2,182		242		30		169,135		169,135
State and other political subdivision loans		—		—		—		—		—		734,615
Other loans		5,186		—		—		—		5,186		422,496
Total	$	1,722,055	$	9,893	$	2,300	$	20,692	$	1,754,940	$	7,091,385

Past Due LHFI

The following tables provide an aging analysis of past due and nonaccrual LHFI by loan type at March 31, 2016 and December 31, 2015 ($ in thousands):

	March 31, 2016
	Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	336	$	—	$	54	$	390	$	6,308	$	690,802	$	697,500
Secured by 1-4 family residential properties		5,468		2,152		403		8,023		23,660		1,608,332		1,640,015
Secured by nonfarm, nonresidential properties		163		—		—		163		22,141		1,870,936		1,893,240
Other real estate secured		448		258		—		706		93		272,953		273,752
Commercial and industrial loans		1,594		94		—		1,688		17,827		1,348,949		1,368,464
Consumer loans		1,071		261		154		1,486		86		162,972		164,544
State and other political subdivision loans		—		—		—		—		—		787,049		787,049
Other loans		438		—		—		438		579		442,441		443,458
Total	$	9,518	$	2,765	$	611	$	12,894	$	70,694	$	7,184,434	$	7,268,022

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

	December 31, 2015
	Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	214	$	—	$	—	$	214	$	6,123	$	818,386	$	824,723
Secured by 1-4 family residential properties		6,203		1,800		2,058		10,061		23,079		1,616,361		1,649,501
Secured by nonfarm, nonresidential properties		437		88		—		525		17,800		1,718,151		1,736,476
Other real estate secured		—		—		—		—		145		211,083		211,228
Commercial and industrial loans		921		45		—		966		7,622		1,334,623		1,343,211
Consumer loans		1,835		347		242		2,424		31		166,680		169,135
State and other political subdivision loans		65		—		—		65		—		734,550		734,615
Other loans		68		—		—		68		512		421,916		422,496
Total	$	9,743	$	2,280	$	2,300	$	14,323	$	55,312	$	7,021,750	$	7,091,385

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

Past Due Loans Held for Sale (LHFS)

LHFS past due 90 days or more totaled $24.1 million and $21.8 million at March 31, 2016 and December 31, 2015, respectively. LHFS past due 90 days or more are serviced loans eligible for repurchase, which are fully guaranteed by the Government National Mortgage Association (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.

During the first quarter of 2015, Trustmark exercised its option to repurchase approximately $28.5 million of delinquent loans serviced for GNMA. These loans were subsequently sold to a third party under different repurchase provisions. Trustmark retained the servicing for these loans, which are subject to guarantees by FHA/VA. As a result of this repurchase and sale, the loans are no longer carried as LHFS. The transaction resulted in a gain of $304 thousand, which is included in mortgage banking, net for 2015. Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first three months of 2016.

Allowance for Loan Losses, LHFI

Trustmark’s allowance for loan loss methodology for commercial LHFI is based upon regulatory guidance from its primary regulator and GAAP. The methodology segregates the commercial purpose and commercial construction LHFI portfolios into nine separate loan types (or pools) which have similar characteristics such as repayment, collateral and risk profiles. The nine basic loan pools are further segregated into Trustmark’s five key market regions, Alabama, 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 450 risk rate factors for commercial loan types. The nine separate pools are shown below:

Commercial Purpose LHFI

Real Estate – Owner-Occupied

Real Estate – Non-Owner Occupied

Working Capital

Non-Working Capital

Land

Lots and Development

Political Subdivisions

Commercial Construction LHFI

1 to 4 Family

Non-1 to 4 Family

The quantitative factors of the allowance methodology reflect a twelve-quarter rolling average of net charge-offs by loan type within each key market region. This allows for a greater sensitivity to current trends, such as economic changes, as well as current loss profiles and creates a more accurate depiction of historical losses.

Qualitative factors used in the allowance methodology include 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

Loan facility risk

Acquisitions

Catastrophe

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 within each key market region.

The allowance for loan loss methodology segregates the consumer LHFI portfolio into homogeneous pools of loans that contain similar structure, repayment, collateral and risk profiles. These homogeneous pools of loans are shown below:

Residential Mortgage

Direct Consumer

Junior Lien on 1-4 Family Residential Properties

Credit Cards

Overdrafts

The historical loss experience for these pools is determined by calculating a 12-quarter rolling average of net charge-offs, which is applied to each pool to establish the quantitative aspect of the methodology. Where, in Management’s estimation, the calculated loss experience does not fully cover the anticipated loss for a pool, an estimate is also applied to each pool to establish the qualitative aspect of the methodology, which represents the perceived risks across the loan portfolio at the current point in time. This qualitative methodology utilizes four separate factors made up of unique components that when weighted and combined produce an estimated level of reserve for each of the loan pools. The four qualitative factors include the following:

Economic indicators

Performance trends

Management experience

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 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.

Trustmark’s loan policy dictates the guidelines to be followed in determining when a loan is charged off. Commercial purpose loans are charged off when a determination is made that the loan is uncollectible and continuance as a bankable asset is not warranted or an impairment evaluation indicates that a value adjustment is necessary. Consumer loans secured by 1-4 family residential real estate are generally charged off or written down when the credit becomes severely delinquent and the balance exceeds the fair value of the property less costs to sell. Non-real estate consumer purpose loans, both secured and unsecured, are generally charged off in full during the month in which the loan becomes 120 days past due. Credit card loans are generally charged off in full when the loan becomes 180 days past due.

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

	Three Months Ended March 31,
	2016			2015
Balance at beginning of period	$	67,619		$	69,616
Loans charged-off		(3,363	)		(3,004	)
Recoveries		3,169			2,924
Net charge-offs		(194	)		(80	)
Provision for loan losses, LHFI		2,243			1,785
Balance at end of period	$	69,668		$	71,321

The following tables detail the balance in the allowance for loan losses, LHFI by loan type at March 31, 2016 and 2015 ($ in thousands):

	2016
	Balance January 1,		Charge-offs			Recoveries		Provision for Loan Losses			Balance March 31,
Loans secured by real estate:
Construction, land development and other land	$	11,587	$	—		$	492	$	(1,937	)	$	10,142
Secured by 1-4 family residential properties		10,678		(692	)		457		30			10,473
Secured by nonfarm, nonresidential properties		21,563		(27	)		119		2,052			23,707
Other real estate secured		2,467		—			1		(395	)		2,073
Commercial and industrial loans		15,815		(770	)		123		2,481			17,649
Consumer loans		2,879		(484	)		1,010		(601	)		2,804
State and other political subdivision loans		809		—			—		7			816
Other loans		1,821		(1,390	)		967		606			2,004
Total allowance for loan losses, LHFI	$	67,619	$	(3,363	)	$	3,169	$	2,243		$	69,668

	Disaggregated by Impairment Method
	Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land	$	736	$	9,406	$	10,142
Secured by 1-4 family residential properties		1,219		9,254		10,473
Secured by nonfarm, nonresidential properties		4,374		19,333		23,707
Other real estate secured		14		2,059		2,073
Commercial and industrial loans		4,890		12,759		17,649
Consumer loans		1		2,803		2,804
State and other political subdivision loans		—		816		816
Other loans		179		1,825		2,004
Total allowance for loan losses, LHFI	$	11,413	$	58,255	$	69,668

	2015
	Balance January 1,		Charge-offs			Recoveries		Provision for Loan Losses			Balance March 31,
Loans secured by real estate:
Construction, land development and other land loans	$	13,073	$	(9	)	$	240	$	2,969		$	16,273
Secured by 1-4 family residential properties		9,677		(434	)		43		(402	)		8,884
Secured by nonfarm, nonresidential properties		18,523		—			315		15			18,853
Other real estate secured		2,141		(24	)		3		(42	)		2,078
Commercial and industrial loans		19,917		(669	)		342		487			20,077
Consumer loans		2,149		(498	)		937		(627	)		1,961
State and other political subdivision loans		1,314		—			—		(627	)		687
Other loans		2,822		(1,370	)		1,044		12			2,508
Total allowance for loan losses, LHFI	$	69,616	$	(3,004	)	$	2,924	$	1,785		$	71,321

	Disaggregated by Impairment Method
	Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land loans	$	4,097	$	12,176	$	16,273
Secured by 1-4 family residential properties		429		8,455		8,884
Secured by nonfarm, nonresidential properties		2,728		16,125		18,853
Other real estate secured		51		2,027		2,078
Commercial and industrial loans		6,502		13,575		20,077
Consumer loans		—		1,961		1,961
State and other political subdivision loans		—		687		687
Other loans		209		2,299		2,508
Total allowance for loan losses, LHFI	$	14,016	$	57,305	$	71,321