Note 11 – FDIC Indemnification Asset

On April 15, 2011, the Mississippi Department of Banking and Consumer Finance closed the Heritage Banking Group (Heritage) and appointed the FDIC as receiver. On the same date, TNB entered into a purchase and assumption agreement with the FDIC in which TNB agreed to assume all of the deposits and purchase essentially all of the assets of Heritage. The FDIC and TNB also entered into a loss-share agreement covering substantially all loans and all other real estate acquired. Under the loss-share agreement, the FDIC will cover 80% of covered loan and other real estate losses incurred. Pursuant to the provisions of the loss-share agreement, TNB may be required to make a true-up payment to the FDIC at the termination of the loss-share agreement should actual losses be less than certain thresholds established in the agreement. TNB calculates the projected true-up payable to the FDIC quarterly and records a FDIC true-up provision for the present value of the projected true-up payable to the FDIC at the termination of the loss-share agreement. TNB’s FDIC true-up provision totaled $2.1 million and $1.7 million at December 31, 2014 and 2013, respectively.

Trustmark periodically re-estimates the expected cash flows on the acquired covered loans as required by FASB ASC Topic 310-30. For 2014, 2013 and 2012, this analysis resulted in improvements in the estimated future cash flows of the acquired covered loans that remain outstanding as well as lower expected remaining losses on those loans, primarily due to pay-offs of acquired covered loans. The pay-offs and improvements in the estimated expected cash flows of the acquired covered loans resulted in a reduction of the expected loss-share receivable from the FDIC. Reductions of the FDIC indemnification asset resulting from improvements in expected cash flows and covered losses based on the re-estimation of acquired covered loans are amortized over the lesser of the remaining life or contractual period of the acquired covered loan as a yield adjustment consistent with the associated acquired covered loan. Other noninterest income for 2014 and 2013 included $2.1 million and $2.5 million, respectively, of amortization of the FDIC indemnification asset, compared to $245 thousand of accretion during 2012. Amortization of the FDIC indemnification asset resulted from improvements in the expected cash flows and lower loss expectations. During 2014 and 2013, other noninterest income also included a reduction of the FDIC indemnification asset of $800 thousand and $3.4 million, respectively, primarily resulting from loan pay-offs partially offset by loan pools of acquired covered loans with increased loss expectations. Other noninterest income for 2012 included a reduction of the FDIC indemnification asset of $3.7 million as a result of loan pay-offs, improved cash flow projections and lower loss expectations for loan pools of acquired covered loans.

For the years ended December 31, 2014, 2013 and 2012, changes in the FDIC indemnification asset were as follows ($ in thousands):

	2014			2013			2012
Balance at beginning of period	$	14,347		$	21,774		$	28,348
(Amortization) Accretion		(2,074	)		(2,469	)		245
Transfers to FDIC claims		(4,443	)		(851	)		(2,544	)
Change in expected cash flows		(517	)		(3,472	)		(3,761	)
Change in FDIC true-up provision		(316	)		(635	)		(514	)
Balance at end of period	$	6,997		$	14,347		$	21,774