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 September 30, 2016 and December 31, 2015, LHFI consisted of the following ($ in thousands): September 30, 2016 December 31, 2015 Loans secured by real estate: Construction, land development and other land $ 766,685 $ 824,723 Secured by 1-4 family residential properties 1,592,453 1,649,501 Secured by nonfarm, nonresidential properties 1,916,153 1,736,476 Other real estate secured 317,680 211,228 Commercial and industrial loans 1,421,382 1,343,211 Consumer loans 170,073 169,135 State and other political subdivision loans 875,973 734,615 Other loans 438,805 422,496 LHFI 7,499,204 7,091,385 Less allowance for loan losses, LHFI 70,871 67,619 Net LHFI $ 7,428,333 $ 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 September 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 September 30, 2016 and December 31, 2015, the carrying amounts of nonaccrual LHFI were $54.4 million and $55.3 million, respectively. Included in these amounts were $3.7 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 September 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 September 30, 2016 and December 31, 2015, specifically evaluated impaired LHFI totaled $28.6 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 $5.0 million and $9.7 million for the first nine 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 September 30, 2016 and December 31, 2015, reserves related to specifically evaluated impaired LHFI totaled $4.5 million and $7.0 million, respectively. Provision recapture on specifically evaluated impaired LHFI totaled $2.0 million for the first nine months of 2016 compared to provision expense of $4.5 million for the first nine months of 2015. At September 30, 2016 and December 31, 2015, impaired LHFI, excluding the specifically evaluated impaired LHFI, totaled $25.8 million and $28.8 million, respectively. In addition, these impaired LHFI had allocated allowance for loan losses of $2.3 million and $2.0 million at the end of the respective periods. No material interest income was recognized in the income statement on impaired LHFI for each of the periods ended September 30, 2016 and 2015. The following tables detail LHFI individually and collectively evaluated for impairment at September 30, 2016 and December 31, 2015 ($ in thousands): September 30, 2016 LHFI Evaluated for Impairment Individually Collectively Total Loans secured by real estate: Construction, land development and other land $ 4,724 $ 761,961 $ 766,685 Secured by 1-4 family residential properties 20,107 1,572,346 1,592,453 Secured by nonfarm, nonresidential properties 10,313 1,905,840 1,916,153 Other real estate secured 1,731 315,949 317,680 Commercial and industrial loans 16,525 1,404,857 1,421,382 Consumer loans 189 169,884 170,073 State and other political subdivision loans — 875,973 875,973 Other loans 821 437,984 438,805 Total $ 54,410 $ 7,444,794 $ 7,499,204 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 September 30, 2016 and December 31, 2015, the carrying amount of LHFI individually evaluated for impairment consisted of the following ($ in thousands): September 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 $ 8,186 $ 3,113 $ 1,611 $ 4,724 $ 453 $ 5,424 Secured by 1-4 family residential properties 25,160 495 19,612 20,107 1,514 21,593 Secured by nonfarm, nonresidential properties 11,633 1,312 9,001 10,313 2,316 14,058 Other real estate secured 1,782 1,000 731 1,731 90 938 Commercial and industrial loans 18,203 12,055 4,470 16,525 2,305 12,073 Consumer loans 193 — 189 189 2 111 State and other political subdivision loans — — — — — — Other loans 966 — 821 821 154 667 Total $ 66,123 $ 17,975 $ 36,435 $ 54,410 $ 6,834 $ 54,864 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 September 30, 2016 and December 31, 2015, Trustmark held $880 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 September 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 September 30, 2016 and 2015, LHFI classified as TDRs totaled $3.7 million and $11.2 million, respectively, and were comprised of credits with interest-only payments for an extended period of time which totaled $1.6 million and $7.5 million, respectively. The remaining TDRs at September 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 $31 thousand and $1.2 million at September 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. Specific charge-offs related to TDRs for the nine months ended September 30, 2016 were $ 1.0 million compared to $806 thousand for the nine months ended September 30, 2015. The following tables illustrate the impact of modifications classified as TDRs as well as those TDRs modified within the last 12 months for which there was a payment default during the period for the periods presented ($ in thousands): Three Months Ended September 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 Loans secured by 1-4 family residential properties — $ — $ — 2 $ 35 $ 35 Nine Months Ended September 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 10 495 495 Loans secured by nonfarm, nonresidential properties — — — 4 3,512 3,512 Consumer loans 1 2 2 — — — Total 10 $ 756 $ 756 14 $ 4,007 $ 4,007 Nine Months Ended September 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 $ 101 4 $ 243 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 September 30, 2016 and 2015 ($ in thousands): September 30, 2016 Accruing Nonaccrual Total Loans secured by real estate: Construction, land development and other land $ — $ 556 $ 556 Secured by 1-4 family residential properties — 2,545 2,545 Secured by nonfarm, nonresidential properties — 179 179 Commercial and industrial loans — 387 387 Consumer loans — 2 2 Total TDRs $ — $ 3,669 $ 3,669 September 30, 2015 Accruing Nonaccrual Total Loans secured by real estate: Construction, land development and other land $ — $ 1,006 $ 1,006 Secured by 1-4 family residential properties 1,385 2,921 4,306 Secured by nonfarm, nonresidential properties 819 4,503 5,322 Other real estate secured — 62 62 Commercial and industrial loans — 477 477 Total TDRs $ 2,204 $ 8,969 $ 11,173 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 primarily composed of 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 are 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 charged off within the period that the loss is determined and are not carried on Trustmark’s books over quarter-end. 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 $1.0 million or more. Confirmation is obtained that guarantor financial statements are current, taxes have been paid and there are no other issues that need to be addressed. This analysis is reviewed by each senior credit officer in the respective market to determine the need for any risk rate or accrual status changes. Consumer Credits Consumer LHFI that do not meet a minimum custom credit score are reviewed quarterly by Management. The Retail Credit Review Committee reviews the volume and percentage of approvals that did not meet the minimum passing custom score by region, individual location, and officer to ensure that Trustmark continues to originate quality loans. Trustmark monitors the levels and severity of past due consumer LHFI on a daily basis through its collection activities. A detailed assessment of consumer LHFI delinquencies is performed monthly at both a product and market level by delivery channel, which incorporates the perceived level of risk at time of underwriting. Trustmark also monitors its consumer LHFI delinquency trends by comparing them to quarterly industry averages. The tables below illustrate the carrying amount of LHFI by credit quality indicator at September 30, 2016 and December 31, 2015 ($ in thousands): September 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 $ 687,123 $ 8,494 $ 9,410 $ 469 $ 705,496 Secured by 1-4 family residential properties 124,472 467 6,262 361 131,562 Secured by nonfarm, nonresidential properties 1,870,036 3,196 41,668 494 1,915,394 Other real estate secured 314,858 — 1,957 — 316,815 Commercial and industrial loans 1,304,137 9,094 107,405 746 1,421,382 Consumer loans — — — — — State and other political subdivision loans 858,168 6,450 11,355 — 875,973 Other loans 429,403 340 2,232 642 432,617 Total $ 5,588,197 $ 28,041 $ 180,289 $ 2,712 $ 5,799,239 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 $ 60,546 $ 176 $ — $ 467 $ 61,189 $ 766,685 Secured by 1-4 family residential properties 1,435,347 8,173 717 16,654 1,460,891 1,592,453 Secured by nonfarm, nonresidential properties 759 — — — 759 1,916,153 Other real estate secured 865 — — — 865 317,680 Commercial and industrial loans — — — — — 1,421,382 Consumer loans 167,817 1,845 218 193 170,073 170,073 State and other political subdivision loans — — — — — 875,973 Other loans 6,188 — — — 6,188 438,805 Total $ 1,671,522 $ 10,194 $ 935 $ 17,314 $ 1,699,965 $ 7,499,204 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 September 30, 2016 and December 31, 2015 ($ in thousands): September 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 $ 1,136 $ 78 $ — $ 1,214 $ 4,724 $ 760,747 $ 766,685 Secured by 1-4 family residential properties 6,801 1,803 717 9,321 20,107 1,563,025 1,592,453 Secured by nonfarm, nonresidential properties 576 — 18 594 10,313 1,905,246 1,916,153 Other real estate secured 144 — — 144 1,731 315,805 317,680 Commercial and industrial loans 868 180 — 1,048 16,525 1,403,809 1,421,382 Consumer loans 1,465 380 218 2,063 189 167,821 170,073 State and other political subdivision loans — — — — — 875,973 875,973 Other loans 147 2 — 149 821 437,835 438,805 Total $ 11,137 $ 2,443 $ 953 $ 14,533 $ 54,410 $ 7,430,261 $ 7,499,204 (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 $25.6 million and $21.8 million at September 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 nine 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 por |