Loans Held for Investment (LHFI) and Allowance for Loan Losses, LHFI | Note 3 – Loans Held for Investment (LHFI) and Allowance for Loan Losses, LHFI At June 30, 2016 and December 31, 2015, LHFI consisted of the following ($ in thousands): June 30, 2016 December 31, 2015 Loans secured by real estate: Construction, land development and other land $ 718,438 $ 824,723 Secured by 1-4 family residential properties 1,620,013 1,649,501 Secured by nonfarm, nonresidential properties 1,900,784 1,736,476 Other real estate secured 323,734 211,228 Commercial and industrial loans 1,466,511 1,343,211 Consumer loans 166,436 169,135 State and other political subdivision loans 805,401 734,615 Other loans 403,864 422,496 LHFI 7,405,181 7,091,385 Less allowance for loan losses, LHFI 71,796 67,619 Net LHFI $ 7,333,385 $ 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 June 30, 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 June 30, 2016 and December 31, 2015, the carrying amounts of nonaccrual LHFI were $65.1 million and $55.3 million, respectively. Included in these amounts were $7.7 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 June 30, 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 June 30, 2016 and December 31, 2015, specifically evaluated impaired LHFI totaled $37.3 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 $1.5 million and $1.3 million for the first six 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 June 30, 2016 and December 31, 2015, reserves related to specifically evaluated impaired LHFI totaled $7.4 million and $7.0 million, respectively. Provision recapture on specifically evaluated impaired LHFI totaled $1.1 million for the first six months of 2016 compared to provision expense of $1.9 million for the first six months of 2015. At June 30, 2016 and December 31, 2015, impaired LHFI, excluding the specifically evaluated impaired LHFI, totaled $27.9 million and $28.8 million, respectively. In addition, these impaired LHFI had allocated allowance for loan losses of $2.3 million and $2.0 million at the end of the respective periods. No material interest income was recognized in the income statement on impaired LHFI for each of the periods ended June 30, 2016 and 2015. The following tables detail LHFI individually and collectively evaluated for impairment at June 30, 2016 and December 31, 2015 ($ in thousands): June 30, 2016 LHFI Evaluated for Impairment Individually Collectively Total Loans secured by real estate: Construction, land development and other land $ 5,663 $ 712,775 $ 718,438 Secured by 1-4 family residential properties 22,298 1,597,715 1,620,013 Secured by nonfarm, nonresidential properties 16,037 1,884,747 1,900,784 Other real estate secured 1,836 321,898 323,734 Commercial and industrial loans 18,470 1,448,041 1,466,511 Consumer loans 70 166,366 166,436 State and other political subdivision loans — 805,401 805,401 Other loans 754 403,110 403,864 Total $ 65,128 $ 7,340,053 $ 7,405,181 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 June 30, 2016 and December 31, 2015, the carrying amount of LHFI individually evaluated for impairment consisted of the following ($ in thousands): June 30, 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 $ 9,087 $ 3,148 $ 2,515 $ 5,663 $ 533 $ 5,893 Secured by 1-4 family residential properties 27,590 4,340 17,958 22,298 543 22,688 Secured by nonfarm, nonresidential properties 17,719 2,542 13,495 16,037 4,485 16,919 Other real estate secured 1,862 — 1,836 1,836 360 990 Commercial and industrial loans 20,960 13,275 5,195 18,470 3,600 13,046 Consumer loans 74 — 70 70 1 50 State and other political subdivision loans — — — — — — Other loans 899 — 754 754 180 633 Total $ 78,191 $ 23,305 $ 41,823 $ 65,128 $ 9,702 $ 60,219 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 June 30, 2016 and December 31, 2015, Trustmark held $392 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. There were no consumer mortgage LHFI classified as TDRs in the process of formal foreclosure proceedings at June 30, 2016 compared to $83 thousand at December 31, 2015. 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 June 30, 2016 and 2015, LHFI classified as TDRs totaled $7.7 million and $12.1 million, respectively, and were primarily comprised of credits with interest-only payments for an extended period of time which totaled $5.4 million and $8.3 million, respectively. The remaining TDRs at June 30, 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 $1.9 million at June 30, 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 six months ended June 30, 2016 compared to $806 thousand for the six months ended 2015. The following tables illustrate the impact of modifications classified as TDRs as well as those TDRs modified within the last 12 months for which there was a payment default during the period for the periods presented ($ in thousands): Three Months Ended June 30, 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 Construction, land development and other land loans 1 $ 14 $ 14 — $ — $ — Loans secured by 1-4 family residential properties 6 669 669 2 82 82 Loans secured by nonfarm, nonresidential properties — — — 4 3,512 3,512 Consumer loans 1 2 2 — — — Total 8 $ 685 $ 685 6 $ 3,594 $ 3,594 Six Months Ended June 30, 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 Construction, land development and other land loans 1 $ 14 $ 14 — $ — $ — Loans secured by 1-4 family residential properties 8 740 740 8 460 460 Loans secured by nonfarm, nonresidential properties — — — 4 3,512 3,512 Consumer loans 1 2 2 — — — Total 10 $ 756 $ 756 12 $ 3,972 $ 3,972 Six Months Ended June 30, 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 $ 16 4 $ 245 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 June 30, 2016 and 2015 ($ in thousands): June 30, 2016 Accruing Nonaccrual Total Loans secured by real estate: Construction, land development and other land $ — $ 577 $ 577 Secured by 1-4 family residential properties — 3,187 3,187 Secured by nonfarm, nonresidential properties — 3,501 3,501 Other real estate secured — — — Commercial and industrial loans — 437 437 Consumer loans — 2 2 Total TDRs $ — $ 7,704 $ 7,704 June 30, 2015 Accruing Nonaccrual Total Loans secured by real estate: Construction, land development and other land $ — $ 1,664 $ 1,664 Secured by 1-4 family residential properties 1,635 2,795 4,430 Secured by nonfarm, nonresidential properties 828 4,584 5,412 Other real estate secured — 62 62 Commercial and industrial loans — 495 495 Total TDRs $ 2,463 $ 9,600 $ 12,063 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 following reviews are performed 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. 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 $1.0 million or more. Confirmation is obtained that guarantor financial statements are current, taxes have been paid and there are no other issues that need to be addressed. This analysis is reviewed by each senior credit officer in the respective market to determine the need for any risk rate or accrual status changes. Consumer Credits Consumer LHFI that do not meet a minimum custom credit score are reviewed quarterly by Management. The Retail Credit Review Committee reviews the volume and percentage of approvals that did not meet the minimum passing custom score by region, individual location, and officer to ensure that Trustmark continues to originate quality loans. Trustmark monitors the levels and severity of past due consumer LHFI on a daily basis through its collection activities. A detailed assessment of consumer LHFI delinquencies is performed monthly at both a product and market level by delivery channel, which incorporates the perceived level of risk at time of underwriting. Trustmark also monitors its consumer LHFI delinquency trends by comparing them to quarterly industry averages. The tables below illustrate the carrying amount of LHFI by credit quality indicator at June 30, 2016 and December 31, 2015 ($ in thousands): June 30, 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 $ 640,320 $ — $ 12,768 $ 523 $ 653,611 Secured by 1-4 family residential properties 126,489 474 6,721 402 134,086 Secured by nonfarm, nonresidential properties 1,850,526 1,055 47,728 667 1,899,976 Other real estate secured 320,911 — 1,882 — 322,793 Commercial and industrial loans 1,403,933 365 61,475 723 1,466,496 Consumer loans 18 — — — 18 State and other political subdivision loans 787,373 6,450 11,578 — 805,401 Other loans 395,286 340 2,536 440 398,602 Total $ 5,524,856 $ 8,684 $ 144,688 $ 2,755 $ 5,680,983 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 $ 64,041 $ 301 $ — $ 485 $ 64,827 $ 718,438 Secured by 1-4 family residential properties 1,457,757 8,052 1,276 18,842 1,485,927 1,620,013 Secured by nonfarm, nonresidential properties 808 — — — 808 1,900,784 Other real estate secured 941 — — — 941 323,734 Commercial and industrial loans 15 — — — 15 1,466,511 Consumer loans 164,430 1,779 140 69 166,418 166,436 State and other political subdivision loans — — — — — 805,401 Other loans 5,262 — — — 5,262 403,864 Total $ 1,693,254 $ 10,132 $ 1,416 $ 19,396 $ 1,724,198 $ 7,405,181 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 June 30, 2016 and December 31, 2015 ($ in thousands): June 30, 2016 Past Due 30-59 Days 60-89 Days 90 Days or (1) Total Nonaccrual Current Loans Total LHFI Loans secured by real estate: Construction, land development and other land $ 311 $ — $ — $ 311 $ 5,663 $ 712,464 $ 718,438 Secured by 1-4 family residential properties 7,087 2,211 1,276 10,574 22,298 1,587,141 1,620,013 Secured by nonfarm, nonresidential properties 347 138 1,966 2,451 16,037 1,882,296 1,900,784 Other real estate secured 83 — — 83 1,836 321,815 323,734 Commercial and industrial loans 1,760 67 — 1,827 18,470 1,446,214 1,466,511 Consumer loans 1,403 376 140 1,919 70 164,447 166,436 State and other political subdivision loans 85 — — 85 — 805,316 805,401 Other loans 263 2 — 265 754 402,845 403,864 Total $ 11,339 $ 2,794 $ 3,382 $ 17,515 $ 65,128 $ 7,322,538 $ 7,405,181 (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 (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 $23.5 million and $21.8 million at June 30, 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 six 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 a |