LHFI and Allowance for Loan Losses, LHFI | Note 5 – LHFI and Allowance for Loan Losses, LHFI At December 31, 2018 and 2017, LHFI consisted of the following ($ in thousands): December 31, 2018 2017 Loans secured by real estate: Construction, land development and other land $ 1,056,601 $ 987,624 Secured by 1-4 family residential properties 1,825,492 1,675,311 Secured by nonfarm, nonresidential properties 2,220,914 2,193,823 Other real estate secured 543,820 517,956 Commercial and industrial loans 1,538,715 1,570,345 Consumer loans 182,448 171,918 State and other political subdivision loans 973,818 952,483 Other loans 494,060 500,507 LHFI 8,835,868 8,569,967 Less allowance for loan losses, LHFI 79,290 76,733 Net LHFI $ 8,756,578 $ 8,493,234 Loan Concentrations Trustmark does not have any loan concentrations other than those reflected in the preceding table, which exceed 10% of total LHFI. At December 31, 2018, 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. Related Party Loans At December 31, 2018 and 2017, loans to certain executive officers and directors, including their immediate families and companies in which they are principal owners, totaled $49.0 million and $59.9 million, respectively. During 2018, $440.5 million of new loan advances were made, while repayments were $451.4 million. There were no increases in loans due to changes in executive officers and directors. Nonaccrual and Past Due LHFI At December 31, 2018 and 2017, the carrying amounts of nonaccrual LHFI were $61.6 million and $67.6 million, respectively. Included in these amounts were $16.7 million and $23.2 million, respectively, of nonaccrual LHFI classified as TDRs. No material interest income was recognized in the income statement on nonaccrual LHFI for each of the years in the three-year period ended December 31, 2018. The following tables provide an aging analysis of past due and nonaccrual LHFI by loan type at December 31, 2018 and 2017 ($ in thousands): December 31, 2018 Past Due 90 Days Current 30-59 Days 60-89 Days or More (1) Total Nonaccrual Loans Total Loans secured by real estate: Construction, land development and other land $ 284 $ — $ — $ 284 $ 2,218 $ 1,054,099 $ 1,056,601 Secured by 1-4 family residential properties 8,600 1,700 569 10,869 14,718 1,799,905 1,825,492 Secured by nonfarm, nonresidential properties 1,887 — — 1,887 9,621 2,209,406 2,220,914 Other real estate secured 197 99 — 296 927 542,597 543,820 Commercial and industrial loans 1,346 300 — 1,646 23,938 1,513,131 1,538,715 Consumer loans 1,800 353 287 2,440 205 179,803 182,448 State and other political subdivision loans 186 — — 186 8,595 965,037 973,818 Other loans 83 — — 83 1,402 492,575 494,060 Total $ 14,383 $ 2,452 $ 856 $ 17,691 $ 61,624 $ 8,756,553 $ 8,835,868 (1) Past due 90 days or more but still accruing interest. December 31, 2017 Past Due 90 Days Current 30-59 Days 60-89 Days or More (1) Total Nonaccrual Loans Total Loans secured by real estate: Construction, land development and other land $ 391 $ 1 $ — $ 392 $ 2,105 $ 985,127 $ 987,624 Secured by 1-4 family residential properties 6,412 2,084 1,917 10,413 19,022 1,645,876 1,675,311 Secured by nonfarm, nonresidential properties 2,319 256 — 2,575 12,608 2,178,640 2,193,823 Other real estate secured — — — — 212 517,744 517,956 Commercial and industrial loans 759 1,233 12 2,004 33,338 1,535,003 1,570,345 Consumer loans 2,141 255 242 2,638 135 169,145 171,918 State and other political subdivision loans 350 39 — 389 — 952,094 952,483 Other loans 18 4 — 22 155 500,330 500,507 Total $ 12,390 $ 3,872 $ 2,171 $ 18,433 $ 67,575 $ 8,483,959 $ 8,569,967 (1) Past due 90 days or more but still accruing interest. Impaired LHFI Trustmark’s individually evaluated impaired LHFI include all commercial nonaccrual relationships of $500 thousand or more, which are specifically reviewed for impairment and deemed impaired, and all LHFI classified as TDRs in accordance with FASB ASC Topic 310-10-50-20, and are primarily collateral dependent loans. Fair value estimates for collateral dependent loans are derived from appraised values based on the current market value or as is value of the collateral, normally from recently received and reviewed appraisals. Current appraisals are ordered on an annual basis based on the inspection date or more often if market conditions necessitate. Appraisals are obtained from state-certified appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by Trustmark’s Appraisal Review Department to ensure they are acceptable, and values are adjusted down for costs associated with asset disposal. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated. At the time a LHFI that has been specifically reviewed for impairment is deemed to be impaired, the full difference between book value and the most likely estimate of the collateral’s net realizable value is either charged off or a specific reserve is established. As subsequent events dictate and estimated net realizable values change, further adjustments may be necessary. No material interest income was recognized in the accompanying consolidated statements of income on impaired LHFI for each of the years in the three-year period ended December 31, 2018. At December 31, 2018 and 2017, individually evaluated for impaired LHFI consisted of the following ($ in thousands): December 31, 2018 LHFI Unpaid Wit h o With an Total Average Principal Allowance Allowance Carrying Related Recorded Balance Recorded Recorded Amount Allowance Investment Loans secured by real estate: Construction, land development and other land $ 1,794 $ 1,528 $ 24 $ 1,552 $ — $ 1,738 Secured by 1-4 family residential properties 4,951 95 3,868 3,963 39 4,328 Secured by nonfarm, nonresidential properties 8,282 6,728 2,748 9,476 413 8,898 Other real estate secured — — 248 248 — 124 Commercial and industrial loans 37,786 12,893 17,824 30,717 4,334 26,725 Consumer loans 2 — 2 2 — 6 State and other political subdivision loans 8,688 4,079 4,516 8,595 516 4,297 Other loans 1,418 230 1,052 1,282 1,052 804 Total $ 62,921 $ 25,553 $ 30,282 $ 55,835 $ 6,354 $ 46,920 December 31, 2017 LHFI Unpaid Wit h o With an Total Average Principal Allowance Allowance Carrying Related Recorded Balance Recorded Recorded Amount Allowance Investment Loans secured by real estate: Construction, land development and other land $ 1,704 $ 1,206 $ 199 $ 1,405 $ 75 $ 1,923 Secured by 1-4 family residential properties 6,031 160 4,576 4,736 1,331 4,693 Secured by nonfarm, nonresidential properties 15,205 10,027 396 10,423 165 8,321 Other real estate secured — — — — — — Commercial and industrial loans 36,874 31,281 518 31,799 131 22,734 Consumer loans 17 — 17 17 — 9 State and other political subdivision loans — — — — — — Other loans 556 — 556 556 41 325 Total $ 60,387 $ 42,674 $ 6,262 $ 48,936 $ 1,743 $ 38,005 Troubled Debt Restructurings At December 31, 2018, 2017 and 2016, LHFI classified as TDRs totaled $28.2 million, $23.9 million and $14.5 million, respectively, and were primarily comprised of credits with interest-only payments for an extended period of time which totaled $23.8 million, $20.5 million and $9.8 million, respectively. The remaining TDRs at December 31, 2018, 2017 and 2016 resulted from bankruptcies or from payment or maturity extensions. Trustmark had $4.4 million of unused commitments on TDRs at December 31, 2018, compared to no material unused commitments on TDRs at December 31, 2017 and 2016. For TDRs, Trustmark had a related loan loss allowance of $2.3 million at December 31, 2018, $458 thousand at December 31, 2017 and $2.2 million at December 31, 2016. 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 totaled $18.4 million, $127 thousand and $1.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. The following tables illustrate the impact of modifications classified as TDRs for the periods presented ($ in thousands): Year Ended December 31, 2018 Modifications Classified as TDRs Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Loans secured by real estate: Construction, land development and other land 1 $ 22 $ 22 Secured by 1-4 family residential properties 23 2,102 1,660 Secured by nonfarm, nonresidential properties 2 1,780 1,780 Commercial and industrial loans 23 26,970 25,862 Consumer loans 3 4 4 Total 52 $ 30,878 $ 29,328 Year Ended December 31, 2017 Modifications Classified as TDRs Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Loans secured by real estate: Construction, land development and other land 1 $ 341 $ 325 Secured by 1-4 family residential properties 22 1,478 1,487 Secured by nonfarm, nonresidential properties 1 426 426 Commercial and industrial loans 8 12,836 12,836 Other loans 1 556 556 Total 33 $ 15,637 $ 15,630 Year Ended December 31, 2016 Modifications Classified as TDRs Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Loans secured by real estate: Construction, land development and other land 1 $ 14 $ 14 Secured by 1-4 family residential properties 18 1,386 1,391 Secured by nonfarm, nonresidential properties 2 717 717 Commercial and industrial loans 5 10,043 9,982 Consumer loans 1 2 2 Total 27 $ 12,162 $ 12,106 The table below includes the balances at default for TDRs modified within the last 12 months for which there was a payment default during the period ($ in thousands): Years Ended December 31, 2018 2017 2016 TDRs that Subsequently Defaulted Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment Construction, land development and other land loans 1 $ 22 — $ — — $ — Loans secured by 1-4 family residential properties 5 734 4 78 1 — Commercial and industrial loans 6 15,178 3 9,526 2 2,154 Consumer loans 1 1 — — — — Total 13 $ 15,935 7 $ 9,604 3 $ 2,154 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 December 31, 2018, 2017 and 2016 ($ in thousands): December 31, 2018 Accruing Nonaccrual Total Loans secured by real estate: Construction, land development and other land $ — $ 24 $ 24 Secured by 1-4 family residential properties 743 3,125 3,868 Secured by nonfarm, nonresidential properties 1,734 395 2,129 Commercial and industrial loans 9,007 12,620 21,627 Consumer loans — 2 2 Other loans — 540 540 Total TDRs $ 11,484 $ 16,706 $ 28,190 December 31, 2017 Accruing Nonaccrual Total Loans secured by real estate: Construction, land development and other land $ — $ 199 $ 199 Secured by 1-4 family residential properties 51 3,140 3,191 Secured by nonfarm, nonresidential properties — 421 421 Commercial and industrial loans 53 19,434 19,487 Consumer loans — 17 17 Other loans 556 — 556 Total TDRs $ 660 $ 23,211 $ 23,871 December 31, 2016 Accruing Nonaccrual Total Loans secured by real estate: Construction, land development and other land $ — $ 405 $ 405 Secured by 1-4 family residential properties — 2,873 2,873 Secured by nonfarm, nonresidential properties — 881 881 Commercial and industrial loans 53 10,266 10,319 Consumer loans — 2 2 Total TDRs $ 53 $ 14,427 $ 14,480 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 and completeness 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 or not current. • 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), Regulation O requirements and regulations governing appraisals. 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 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, nonaccrual relationships of $500 thousand or more that are rated in one of the classified 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 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 $100 thousand or more. In addition, a semi-annual review of significant development, commercial construction, multi-family and non-owner occupied projects is performed. This review assesses each particular project with respect to location, project valuations, progress of completion, leasing status, current financial information, rents, operating expenses, cash flow, adherence to budget and projections and other information as applicable. Summary results are reviewed by Senior and Regional Credit Officers in addition to the Chief Credit Officer with a determination made as to the appropriateness of existing risk ratings and accrual status. Consumer Credits Consumer LHFI that do not meet a minimum custom credit score are reviewed quarterly by Management. The Retail Credit Review Committee reviews the volume and percentage of approvals that did not meet the minimum passing custom score by region, individual location, and officer to ensure that Trustmark continues to originate quality loans. Trustmark monitors the levels and severity of past due consumer LHFI on a daily basis through its collection activities. A detailed assessment of consumer LHFI delinquencies is performed monthly at both a product and market level by delivery channel, which incorporates the perceived level of risk at time of underwriting. The tables below present LHFI by loan type and credit quality indicator at December 31, 2018 and 2017 ($ in thousands): December 31, 2018 Commercial LHFI Pass - Special Mention - Substandard - Doubtful - Categories Category 7 Category 8 Category 9 Subtotal Loans secured by real estate: Construction, land development and other land $ 982,305 $ 75 $ 5,645 $ 203 $ 988,228 Secured by 1-4 family residential properties 123,191 216 2,731 229 126,367 Secured by nonfarm, nonresidential properties 2,182,106 1,250 37,025 473 2,220,854 Other real estate secured 537,958 323 4,610 — 542,891 Commercial and industrial loans 1,468,262 12,431 55,943 2,079 1,538,715 Consumer loans — — — — — State and other political subdivision loans 958,214 5,250 10,354 — 973,818 Other loans 460,568 17,842 10,323 49 488,782 Total $ 6,712,604 $ 37,387 $ 126,631 $ 3,033 $ 6,879,655 Consumer LHFI Past Due Past Due Current 30-89 Days 90 Days or More Nonaccrual Subtotal Total LHFI Loans secured by real estate: Construction, land development and other land $ 67,913 $ 124 $ — $ 336 $ 68,373 $ 1,056,601 Secured by 1-4 family residential properties 1,675,455 9,872 569 13,229 1,699,125 1,825,492 Secured by nonfarm, nonresidential properties 60 — — — 60 2,220,914 Other real estate secured 929 — — — 929 543,820 Commercial and industrial loans — — — — — 1,538,715 Consumer loans 179,802 2,153 288 205 182,448 182,448 State and other political subdivision loans — — — — — 973,818 Other loans 5,278 — — — 5,278 494,060 Total $ 1,929,437 $ 12,149 $ 857 $ 13,770 $ 1,956,213 $ 8,835,868 December 31, 2017 Commercial LHFI Pass - Special Mention - Substandard - Doubtful - Categories 1-6 Category 7 Category 8 Category 9 Subtotal Loans secured by real estate: Construction, land development and other land $ 922,563 $ 316 $ 3,780 $ 222 $ 926,881 Secured by 1-4 family residential properties 127,405 134 4,948 76 132,563 Secured by nonfarm, nonresidential properties 2,135,749 6,684 50,785 527 2,193,745 Other real estate secured 517,036 — 517 — 517,553 Commercial and industrial loans 1,437,590 28,780 103,089 886 1,570,345 Consumer loans — — — — — State and other political subdivision loans 936,420 5,850 10,213 — 952,483 Other loans 478,083 — 16,390 108 494,581 Total $ 6,554,846 $ 41,764 $ 189,722 $ 1,819 $ 6,788,151 Consumer LHFI Past Due Past Due Current 30-89 Days 90 Nonaccrual Subtotal Total LHFI Loans secured by real estate: Construction, land development and other land $ 60,240 $ 342 $ — $ 161 $ 60,743 $ 987,624 Secured by 1-4 family residential properties 1,516,691 7,874 1,809 16,374 1,542,748 1,675,311 Secured by nonfarm, nonresidential properties 78 — — — 78 2,193,823 Other real estate secured 403 — — — 403 517,956 Commercial and industrial loans — — — — — 1,570,345 Consumer loans 169,146 2,396 242 134 171,918 171,918 State and other political subdivision loans — — — — — 952,483 Other loans 5,926 — — — 5,926 500,507 Total $ 1,752,484 $ 10,612 $ 2,051 $ 16,669 $ 1,781,816 $ 8,569,967 Past Due LHFS LHFS past due 90 days or more totaled $37.4 million and $35.5 million at December 31, 2018 and 2017, respectively. Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during 2018 or 2017. 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 five 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 five qualitative factors include the following: • Economic indicators • Performance trends • Management experience • Credit concentrations • Loan policy exceptions 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. The following tables detail the balance in the allowance for loan losses, LHFI allocated to each loan type segmented by the impairment evaluation methodology used at December 31, 2018 and 2017 ($ in thousands): December 31, 2018 Individually Collectively Total Loans secured by real estate: Construction, land development and other land $ — $ 7,390 $ 7,390 Secured by 1-4 family residential properties 39 8,602 8,641 Secured by nonfarm, nonresidential properties 413 21,963 22,376 Other real estate secured — 3,450 3,450 Commercial and industrial loans 4,334 23,025 27,359 Consumer loans — 2,890 2,890 State and other political subdivision loans 516 474 990 Other loans 1,052 5,142 6,194 Total allowance for loan losses, LHFI $ 6,354 $ 72,936 $ 79,290 December 31, 2017 Individually Collectively Total Loans secured by real estate: Construction, land development and other land $ 75 $ 7,790 $ 7,865 Secured by 1-4 family residential properties 1,331 9,543 10,874 Secured by nonfarm, nonresidential properties 165 23,263 23,428 Other real estate secured — 2,790 2,790 Commercial and industrial loans 131 22,720 22,851 Consumer loans — 3,470 3,470 State and other political subdivision loans — 789 789 Other loans 41 4,625 4,666 Total allowance for loan losses, LHFI $ 1,743 $ 74,990 $ 76,733 The following tables detail LHFI by loan type related to each balance in the allowance for loan losses, LHFI segregated by the impairment evaluation methodology used at December 31, 2018 and 2017 ($ in thousands): December 31, 2018 LHFI Evaluated for Impairment Individually Collectively Total Loans secured by real estate: Construction, land development and other land $ 1,552 $ 1,055,049 $ 1,056,601 Secured by 1-4 family residential properties 3,963 1,821,529 1,825,492 Secured by nonfarm, nonresidential properties 9,476 2,211,438 2,220,914 Other real estate secured 248 543,572 543,820 Commercial and industrial loans 30,717 1,507,998 1,538,715 Consumer loans 2 182,446 182,448 State and other political subdivision loans 8,595 965,223 973,818 Other loans 1,282 492,778 494,060 Total $ 55,835 $ 8,780,033 $ 8,835,868 December 31, 2017 LHFI Evaluated for Impairment Individually Collectively Total Loans secured by real estate: Construction, land development and other land $ 1,405 $ 986,219 $ 987,624 Secured by 1-4 family residential properties 4,736 1,670,575 1,675,311 Secured by nonfarm, nonresidential properties 10,423 2,183,400 2,193,823 Other real estate secured — 517,956 517,956 Commercial and industrial loans 31,799 1,538,546 1,570,345 Consumer loans 17 171,901 171,918 State and other political subdivision loans — 952,483 952,483 Other loans 556 499,951 500,507 Total $
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