Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ ☐No No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☐ No ☑

Based on the closing sales price at June ~~28, 2019,~~30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares of common stock held by nonaffiliates of the registrant was approximately ~~$1.217~~$1.065 billion.

As of January 31, ~~2020,~~2023, there were issued and outstanding ~~63,843,049~~60,979,518 shares of the registrant’s Common Stock.

Certain statements contained in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential,” “seek,” “continue,” “could,” “would,” “future” or the negative of those terms or other words of similar meaning. You should read statements that contain these words carefully because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things, and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. You should be aware that the occurrence of the events described under the caption Item 1A. Risk Factors in this report could have an adverse effect on our business, results of operations and financial condition. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected.

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, ~~local, state~~an increase in unemployment levels and ~~national~~slowdowns in economic ~~and market conditions, including potential market impacts of efforts~~growth, actions by the Board of Governors of the Federal Reserve ~~Board~~System (FRB) ~~to reduce~~that impact the ~~size~~level of ~~its balance sheet,~~market interest rates, local, state and national economic and market conditions, conditions in the housing and real estate markets in the regions in which Trustmark operates and the extent and duration of the current volatility in the credit and financial markets, ~~as well as~~levels of and volatility in crude oil prices, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions, including the potential impact of issues related to the European financial system and monetary and other governmental actions designed to address credit, securities, and/or commodity markets, the enactment of legislation and changes in existing regulations or enforcement practices or the adoption of new regulations, changes in accounting standards and practices, including changes in the interpretation of existing standards, that affect our consolidated financial statements, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of our borrowers, changes in our ability to control expenses, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, cyber-attacks and other breaches which could affect our information system security, natural disasters, environmental disasters, pandemics or other health crises, acts of war or terrorism, and other risks described in our filings with the Securities and Exchange Commission (SEC).

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Except as required by law, we undertake no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.

Trustmark Corporation (Trustmark), a Mississippi business corporation incorporated in 1968, is a bank holding company headquartered in Jackson, Mississippi. Trustmark’s principal subsidiary is Trustmark National Bank (TNB), initially chartered by the State of Mississippi in 1889. At December 31, ~~2019,~~2022, TNB had total assets of ~~$13.496~~$18.013 billion, which represented approximately 99.99% of the consolidated assets of Trustmark.

Through TNB and its subsidiaries, Trustmark operates as a financial services organization providing banking and other financial solutions through ~~193~~169 offices and ~~2,844~~2,738 full-time equivalent associates (measured at December 31, ~~2019)~~2022) located in the states of Alabama (includes the Georgia Loan Production Office (LPO), which are collectively referred to herein as Trustmark's Alabama market region), Florida (primarily in the northwest or “Panhandle” region of that state, which is referred to herein as Trustmark’s Florida market), Mississippi, Tennessee (in the Memphis and Northern Mississippi regions, which are collectively referred to herein as Trustmark’s Tennessee market), and Texas (primarily in Houston, which is referred to herein as Trustmark’s Texas market). The principal products produced and services rendered by TNB and Trustmark’s other subsidiaries are as follows:

Commercial Banking – TNB provides a full range of commercial banking services to corporations and other business customers. Loans are provided for a variety of general corporate purposes, including financing for commercial and industrial projects, income producing commercial real estate, owner-occupied real estate and construction and land development. TNB also provides deposit services, including checking, savings and money market accounts and certificates of deposit as well as treasury management services.

Consumer Banking – TNB provides banking services to consumers, including checking, savings, and money market accounts as well as certificates of deposit and individual retirement accounts. In addition, TNB provides consumer customers with installment and real estate loans and lines of credit.

Mortgage Banking – TNB provides mortgage banking services, including construction financing, production of conventional and government insured mortgages, secondary marketing and mortgage servicing.

Insurance – TNB provides a competitive array of insurance solutions for business and individual risk management needs. Business insurance offerings include services and specialized products for medical professionals, construction, manufacturing, hospitality, real estate and group life and health plans. Individual customers are also provided life and health insurance, and personal line policies. TNB provides these services through Fisher Brown Bottrell Insurance, Inc. (FBBI), a Mississippi corporation and a wholly-owned subsidiary of TNB, which is based in Jackson, Mississippi.

Wealth Management and Trust Services – TNB offers specialized services and expertise in the areas of wealth management, trust, investment and custodial services for corporate and individual customers. These services include the administration of personal trusts and estates as well as the management of investment accounts for individuals, employee benefit plans and charitable foundations. TNB also provides corporate trust and institutional custody, securities brokerage, financial and estate planning and retirement plan services. TNB’s Wealth Management Segment is also assisted by Trustmark Investment Advisors, Inc. (TIA), a SEC-registered investment adviser and a wholly-owned subsidiary of TNB. TIA provides customized investment management services to TNB’s Wealth Management Segment, which in turn relies upon that advice to provide investment management services to TNB’s wealth management customers.

New Market Tax Credits (NMTC) – TNB provides an intermediary vehicle for the provision of loans or investments in Low-Income Communities (LICs) through its subsidiary Southern Community Capital, LLC (SCC). SCC is a Mississippi single member limited liability company, a certified Community Development Entity (CDE) and a wholly-owned subsidiary of TNB. The primary mission of SCC is to provide investment capital for LICs, as defined by Section 45D of the Internal Revenue Code, or for Low-Income Persons (LIPs). As a certified CDE, SCC is able to apply to the Community Development Financial Institutions Fund (CDFI Fund) to receive NMTC allocations to offer investors in exchange for equity investments in qualified projects.

Trustmark Preferred Capital Trust I (the Trust) is a Delaware trust affiliate and a wholly-owned subsidiary of Trustmark formed in 2006 to facilitate a private placement of $60.0 million in trust preferred securities. As defined in applicable accounting standards, the Trust is considered a variable interest entity for which Trustmark is not the primary beneficiary. Accordingly, the accounts of the Trust are not included in Trustmark’s consolidated financial statements.

Trustmark seeks to be a premier diversified financial services company in its markets, providing a broad range of banking, wealth management and insurance solutions to its customers. Trustmark’s products and services are designed to strengthen and expand customer relationships and enhance the organization’s competitive advantages in its markets as well as to provide cross-selling opportunities that will enable Trustmark to continue to diversify its revenue and earnings streams.

The following table sets forth summary data regarding Trustmark’s securities, loans, assets, deposits, equity and revenue over the past ~~five~~three years ($ in thousands):

* Consistent with Trustmark’s audited financial statements, revenue is defined as net interest income plus noninterest income.

For additional information regarding the general development of Trustmark’s business, see Part II. Item 6. – Selected Financial Data and Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.

Trustmark categorizes loans on its balance sheet into ~~three~~two categories. These categories are described in more detail in Note 1 – Significant Accounting Policies included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

The following discussion briefly summarizes Trustmark’s lending business by focusing on LHFI and LHFS and includes a discussion of the risks inherent in these loans, Trustmark’s underwriting policies for its loans and the characteristics of the real estate loan component of these loans. Acquired loans and covered loans are excluded from this summary, as Trustmark did not underwrite those loans at inception. Discussion of Trustmark’s acquired loans, including covered loans, is contained elsewhere in this report.

As a general matter, extending credit to businesses and consumers exposes Trustmark to credit risk, which is the risk that the principal balance and any related interest may not be collected according to the original terms due to the inability or unwillingness of the borrower to repay the loan. Trustmark mitigates credit risk through a set of internal controls, which includes adherence to

conservative lending practices and underwriting guidelines, collateral monitoring, and oversight of its borrower’s financial performance and collateral. The risks inherent in specific subsets of lending are discussed below.

LHFI Secured by Construction, Land Development, and Other Land – Construction and land development loans include loans for both commercial and residential properties to builders/developers, other commercial borrowers and consumers. This category also includes loans secured by vacant land, except land known to be used or usable for agricultural purposes, such as crop and livestock production. Repayment is normally derived from the sale of the underlying property or from permanent financing, which refinances Trustmark’s

initial loan. Trustmark’s engagement in this type of lending is generally extended to those builders and developers exhibiting the highest credit quality with significant equity invested in the project and is primarily restricted to projects within Trustmark’s geographic markets. The underwriting process for these loans includes analysis of the financial position and strength of both the borrower and guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral and availability of permanent financing. Risk within this portfolio is mitigated through adherence to policies and lending limits, periodic target credit reviews of the different segments of this portfolio, inspection of projects throughout the life of the loan and routine monitoring of financial information and collateral values as they are updated.

Inherent in real estate construction lending is the risk that the full value of the collateral does not exist at the time the loan is granted. Construction lending also inherently includes the risk associated with a borrower’s ability to successfully complete a proposed project on time and within budget. Further, adverse changes in the market occurring between the start of construction and completion of the projects can result in slower sales or rental rates and lower sales prices than originally anticipated which could impact the underlying real estate collateral values and timely and full repayment of these loans. Rising interest rates can adversely affect the cost of construction and the financial viability of real estate projects. Higher interest rates may also result in higher capitalization rates, thereby reducing a property’s value. As a result of this risk profile, LHFI secured by construction, land development and other land are considered to be higher risks than other real estate loans.

LHFI and LHFS Secured by Residential Properties – Residential real estate loans consist of first and junior liens on residential properties that are extended in the geographic markets in which Trustmark operates as well as mortgage products, originated and purchased, that are underwritten to secondary market standards. Credit underwriting standards include evaluation of the borrower’s credit history and repayment capacity, including verification of income and valuation of collateral. Portfolio performance is continuously evaluated through updated credit bureau scores and monitoring of repayment performance.

Credit performance of consumer residential real estate loans is highly dependent on housing values and household income which, in turn are highly dependent on national, regional and local economic factors. Rising interest rates, rising unemployment rates and other adverse changes in these economies may have a negative effect on the ability of Trustmark’s borrowers to repay these loans and negatively affect value of the underlying residential real estate collateral.

LHFI Secured by Nonfarm, Nonresidential Properties (NFNR LHFI) – Trustmark provides financing for both owner-occupied commercial real estate as well as income-producing commercial real estate. Trustmark seeks to maintain a balance of owner-occupied and income-producing real estate loans that moderates its risk to the specific risks of each type of loan. Commercial real estate term loans are typically collateralized by liens on real property. Both types of commercial real estate loans are underwritten to lending policies that include maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type. Income-producing commercial real estate loans also generally require substantial equity and are subject to exposure limits for a single project. All exceptions to established guidelines are subject to stringent internal review and require specific approval. As with commercial loans, the borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting. Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance in addition to analysis of the proposed project for income-producing properties. Additional support offered by guarantors is also considered.

Risk for owner-occupied commercial real estate is driven by the creditworthiness of the underlying borrowers, particularly cash flow from the borrowers’ business operations as well as the risk of a shortfall in collateral. Credit performance of loans secured by commercial income-producing real estate can be negatively affected by national, regional and local economic conditions, which may result in deteriorating tenant credit profiles, tenant losses, reduced rental/lease rates and higher than anticipated vacancy rates, all contributing to declines in value or liquidity of the underlying real estate collateral. Other factors, such as increasing interest rates, may result in higher capitalization rates, thereby reducing a property’s value.

Commercial and Industrial LHFI – Commercial loans (other than commercial loans related to real estate assets, which are summarized above) are made to many types of businesses for various purposes, such as short-term working capital loans that are usually secured by accounts receivable and inventory, equipment and fixed asset purchases that are secured by those assets and term financing for those within Trustmark’s geographic markets. Trustmark’s credit underwriting process for commercial loans includes analysis of historical and projected cash flows and performance, evaluation of financial strength of both borrowers and guarantors as

reflected in current and detailed financial information and evaluation of underlying collateral to support the credit. Credit risk within the commercial loan portfolio is managed through adherence to specific commercial lending policies and internally established lending authorities, diversification within the portfolio and monitoring of the portfolio on a continuing basis.

Credit risk in commercial and industrial loans can arise due to fluctuations in borrowers’ financial condition, deterioration in collateral values and changes in market conditions. The credit risk inherent in these loans depends on, to a significant degree, the general economic

conditions of these areas. Further, credit risk can increase if Trustmark’s loans are concentrated to borrowers engaged in the same or similar activities, or to groups of borrowers who may be uniquely or disproportionately affected by market or economic conditions.

Consumer LHFI – Consumer credit includes loans to individuals for household and personal items, automobile purchases, unsecured loans, personal lines of credit and credit cards. All consumer loans are subject to a standardized underwriting process through Trustmark’s consumer loan center, which uses a custom credit scoring model with emphasis placed upon the borrower’s credit evaluation and historical performance, income evaluation and valuation of collateral (where applicable). Updated credit bureau scores are obtained on all existing consumer loans/lines on a periodic basis in order to monitor portfolio credit quality changes and mitigate risk.

Similar to residential real estate loan portfolios, an inherent risk factor in consumer loans is that they are dependent on national, regional and local economic factors that affect employment in the markets where these loans are originated. Generally, consumer loan portfolios consist of a large number of relatively small-balance loans, some of which are originated as unsecured credit (credit cards and some personal lines of credit), and as such, do not have collateral as a secondary source of repayment. Consumer loans generally pose heightened risks of collectability and loss when compared to other loan types.

Other LHFI – Other loans primarily consist of loans to non-depository financial institutions, such as mortgage companies, finance companies and other financial intermediaries, loans to state and political subdivisions, and loans to non-profit and charitable organizations. These loans are underwritten based on the specific nature or purpose of the loan and underlying collateral with special consideration given to the specific source of repayment for the loan.

Similar to commercial and industrial loans, inherent risk in other loans can arise due to fluctuations in borrowers’ financial condition, deterioration in collateral values and changes in market and economic conditions. Loans to state and political subdivisions have the added inherent risk of being somewhat dependent on the ability and capacity of those entities to generate tax and other revenue to repay the loans. Loans to non-profit and charitable organizations are dependent on those organizations’ ability to generate revenue through their fundraising efforts and other forms of financial support, which can be susceptible to economic downturns.

~~The economy~~Economic activity continued to ~~show moderate signs of improvement~~improve during ~~2019;~~2022 as COVID-19 cases declined across the United States and restrictions were lifted; however, economic concerns remain as a result of the cumulative weight of ~~volatility in crude oil prices and uncertain growth prospects in emerging markets, combined with~~ uncertainty regarding the ~~potential monetary policy changes by the FRB, the consequences~~long-term effectiveness of the ~~decision of the United Kingdom to exit the European Union,~~COVID-19 vaccine and the potential economic impact onof recent geopolitical developments, such as Russia's invasion of Ukraine. Inflation has become elevated, reflecting supply and demand imbalances related to the ~~economy of the current United States presidential administration’s policies~~pandemic, supply chain issues, higher energy prices and ~~United States trade relations, particularly with China.~~broader price pressures. Doubts surrounding the near-term direction of global markets and the potential impact ~~of these trends~~ on the United States economy are expected to persist for the near term. While ~~Trustmark’s~~Trustmark's customer base is wholly domestic, international economic conditions affect domestic economic conditions, and thus may have an impact upon ~~Trustmark’s~~Trustmark's financial condition or results of operations.

In the January 2020 “Summary of Commentary on Current Economic Conditions by Federal Reserve Districts,” the twelve Federal Reserve Districts’ reports suggested national economic activity expanded at a modest pace during the reporting period. Reports by the twelve Federal Reserve Districts noted loan volumes were mostly characterized as steady to expanding moderately, home sales trend varied widely but were flat overall, residential rental markets strengthened, new residential construction expanded modestly, commercial real estate activity varied substantially and little change in activity in the energy sector. Reports by the twelve Federal Reserve Districts also noted employment was steady to rising modestly, though labor markets remained tight throughout the nation, wages rose at a modest to moderate pace and prices continuedMarket interest rates began to rise during 2022 after an extended period at a modest pace. Most Federal Reserve Districts cited widespread labor shortages as a factor constraining job growth. Reports by the twelve Federal Reserve Districts noted tariffs and trade uncertainty continued to weigh on some businesses, but expectations for the near-term outlook remained modestly favorable across the nation.

The Federal Reserve’s Sixth District, Atlanta (which includes Trustmark’s Alabama, Florida and Mississippi market regions), reported that economic activity expanded at a modest pace, labor markets remained tight and wage pressures persisted for lower-skilled positions, residential real estate conditions continued to improve as lower mortgage rates increased demand for housing, commercial real estate leasing and sales activity was steady and financial conditions at banking institutions within the District remained healthy,

~~noting improved earnings as increases~~historical lows. Starting in noninterest income helped to offset ongoing declines in the net interest margin, asset quality remained stable and moderate loan growth. The Federal Reserve’s Eighth District, St. Louis (which includes Trustmark’s Tennessee market region), reported that economic conditions improved slightly, employment levels were unchanged, as labor markets remained tight, and moderate growth in wages, residential real estate activity declined slightly and residential construction activity increased slightly while builders remain confident that housing demand will remain robust due to low mortgage rates, commercial construction activity increased modestly, and banking conditions improved modestly as outstanding loan volumes increased by 4.0% during the fourth quarter compared to one year ago. The Federal Reserve’s Eleventh District, Dallas (which includes Trustmark’s Texas market region), reported economic activity expanded solidly, moderate employment growth and upward wage pressures continued, home sales increased broadly with demand exceeding expectations in some areas due to healthy job growth and low mortgage rates, apartment demand remained healthy, activity in the office market was mixed in Houston, increased growth in loan demand, growth in loan volumes was broad based with both commercial and residential real estate lending continuing to lead the growth and loan pricing continued to decline. The Federal Reserve’s Eleventh District also reported that drilling activity was up slightly, though the energy sector remains distressed as access to capital was limited, particularly for small firms, and bankruptcies could likely rise; however, U.S. crude oil production is projected to grow in 2020.

~~During October 2019,~~March 2022, the FRB ~~lowered~~began raising the target ~~range for the~~ federal funds rate for the ~~third~~first time in ~~2019~~three years and continued with multiple increases throughout 2022, up to a range of 4.25% to 4.50% as ~~anticipated. While recently-released~~of December 2022. The FRB ~~minutes indicate~~also signaled the possibility of additional rate increases throughout 2023. In addition, the FRB increased the interest that ~~a majority~~it pays on reserves multiple times during 2022 from 0.10% to 4.40% as of the Board believe that there is not a need to cut rates further, the level of future rates will likely depend upon the performance of the economy. Interest rates remain within a low range that, when combined with the extendedDecember 2022. The prolonged period of ~~historically low~~reduced interest rates ~~in recent years,~~has had and may continue to ~~place pressure~~have an adverse effect on net interest income and margins and profitability for ~~Trustmark (as well~~financial institutions, including Trustmark. Additionally, as ~~its competitors). Any further declines in~~ interest rates ~~will place additional competitive pressure on net interest margins. Conversely, any increases in interest rates will place~~have increased, so have competitive pressures on the deposit cost of funds. It is not possible to predict the pace and magnitude of changes toin interest rates, or the impact rate changes will have on ~~Trustmark’s~~Trustmark's results of operations.

In the January 2023 “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” the twelve Federal Reserve Districts’ reports suggested that economic activity during the reporting period (covering the period from November 24, 2022 through January 9, 2023) was mixed across Districts, with five Districts reporting slight to modest increases in overall activity, six Districts reporting no change or slight declines and one District reporting a significant decline. Reports by the twelve Federal Reserve Districts noted the following during the reporting period:

Reports by the Federal Reserve’s Sixth District, Atlanta (which includes Trustmark’s Alabama, Florida and Mississippi market regions), Eighth District, St. Louis (which includes Trustmark’s Tennessee market region), and Eleventh District, Dallas (which includes Trustmark’s Texas market region), noted similar findings for the reporting period as those discussed above. The Federal Reserve’s Sixth District also noted that loan growth for a majority of portfolios was steady, institutions cut investments in mortgage-backed securities as unrealized losses in securities portfolios increased, deposit growth shifted primarily to time deposits as growth in other deposits declined during the reporting period, and institutions increased short-term borrowings to fund ongoing loan growth, and asset quality metrics showed a steady increase in the level of nonperformance. The Federal Reserve’s Eleventh District also reported energy activity continued to expand during the reporting period, with a slight increase in rig count and sizeable increases in both oil and natural gas production during the fourth quarter of 2022, and due to high demand for oilfield services and supply chain issues, the industry remained constrained on equipment and labor and expectations were for activity to expand at a slow and steady pace in 2023. The Federal Reserve’s Eleventh District report also noted that contacts seemed confident that crude oil markets to remain tight for the next several years, keeping oil prices higher enough for most District producers to profitably drill new wells, and that outlooks for the energy sector improved overall and most contacts expecting increases in capital spending in 2023.

For additional discussion of the impact of the current economic environment on the financial condition and results of operations of Trustmark and its subsidiaries, see Part II. Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.

There is significant competition within the banking and financial services industry in the markets in which Trustmark operates. Changes in regulation, technology and product delivery systems have resulted in an increasingly competitive environment. Trustmark expects to continue to face increasing competition from online and traditional financial institutions seeking to attract customers by providing access to similar services and products.

Trustmark and its subsidiaries compete with national and ~~state chartered~~state-chartered banking institutions of comparable or larger size and resources and with smaller community banking organizations. Trustmark has numerous local, regional and national nonbank competitors, including savings and loan associations, credit unions, mortgage companies, insurance companies, finance companies, financial service operations of major retailers, investment brokerage and financial advisory firms and mutual fund companies. Because nonbank financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility and lower cost structures. Currently, Trustmark does not face meaningful competition from international banks in its markets, although that could change in the future.

At June 30, ~~2019,~~2022, Trustmark’s deposit market share ranked within the top three positions in ~~55%~~55.0% of the 56 counties served and within the top five positions in ~~71%~~68.0% of the counties served. The following table ~~below~~ presents ~~FDIC~~Federal Deposit Insurance Corporation (FDIC) deposit data regarding TNB’s deposit market share by state as of June 30, ~~2019.~~2022. The FDIC deposit market share data presented below does not align with Trustmark’s reported geographic market regions, which in some instances cross state lines, and Trustmark’s

geographic coverage within certain states presented below is not statewide (see the section captioned “Description of Business” above).

Services provided by the Wealth Management Segment face competition from many national, regional and local financial institutions. Companies that offer broad services similar to those provided by Trustmark, such as other banks, trust companies and full-service brokerage firms, as well as companies that specialize in particular services offered by Trustmark, such as investment advisors and mutual fund providers, all compete with Trustmark’s Wealth Management Segment.

Trustmark’s insurance subsidiary faces competition from local, regional and national insurance companies, independent insurance agencies as well as from other financial institutions offering insurance products.

Trustmark’s ability to compete effectively is a result of providing customers with desired products and services in a convenient and cost-effective manner. Customers for commercial, consumer and mortgage banking as well as wealth management and insurance services are influenced by convenience, quality of service, personal contacts, availability of products and services and competitive pricing. Trustmark continually reviews its products, locations, alternative delivery channels, and pricing strategies to maintain and enhance its competitive position. While Trustmark’s position varies by market, Management believes it can compete effectively as a result of the quality of Trustmark’s products and services, local market knowledge and awareness of customer needs.

The following discussion sets forth material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides specific information relevant to Trustmark. The discussion is a summary of detailed statutes, regulations and policies. The descriptions are not intended to be complete summaries of the statutes, regulations and policies referenced therein. Such statutes, regulations and policies are continually under the review of the United States Congress and state legislatures as well as federal and state regulatory agencies. A change in statutes, regulations or policies could have a material impact on the business of Trustmark and its subsidiaries.

Trustmark is a registered bank holding company under the Bank Holding Company Act of 1956 (BHC Act). Trustmark and its nonbank subsidiaries are therefore subject to the supervision, examination, enforcement and reporting requirements of the BHC Act, the Federal Deposit Insurance Act (FDI Act), the regulations of the FRB and certain of the requirements imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), as amended by the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA).

The BHC Act requires every bank holding company to obtain the prior approval of the FRB before: (i) it may acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, the bank holding company will directly or indirectly own or control 5.0% or more of the voting shares of the bank; (ii) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or (iii) it may merge or consolidate with any other bank holding company. The BHC Act further ~~provides that~~requires the FRB ~~may not approve any such transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy~~ to ~~monopolize or attempt to monopolize~~consider the ~~business of banking in any section~~competitive impact of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction, ~~are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The FRB is also required to consider~~ the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be ~~served.~~served, including the applicant’s record of performance under the Community Reinvestment Act (CRA). The FRB is also required to take into account in evaluating such a transaction the effectiveness of the parties in combatting money laundering activities. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues includes the parties’ performance under the Community Reinvestment Act of 1977 (CRA). Provisions of the FDI Act known as the Bank Merger Act impose similar approval standards for an insured depository institution to merge with another insured depository institution.

The BHC Act also generally requires FRB approval for a bank holding company’s acquisition of a company that is not an insured depository institution. Bank holding companies generally may engage, directly or indirectly, only in banking and such other activities as are determined by the FRB to be closely related to banking. The FRB must generally consider whether performance of the activity by a bank holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. The FRB has express statutory authority to also consider the “risk to the stability of the United States banking or financial system” when reviewing the acquisition of such a company by a bank holding company.

The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal Act), permits a bank holding company, such as Trustmark, to acquire a bank located in any other state, regardless of state law to the contrary, subject to certain deposit-percentage, aging requirements, and other restrictions, if the company is

well-capitalized. The Riegle-Neal Act also generally permits national and state-chartered banks to branch interstate through acquisitions of banks in other states, if the resulting institution would be well-capitalized and well-managed.

The CRA requires an insured depository institution’s appropriate federal banking regulator to evaluate the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, and to consider this record in its evaluation of certain applications to banking regulators, such as an application for approval of a merger or the establishment of a branch. A rating of less than “Satisfactory” may provide a basis for denial of such an application. As of its last examination fromIn addition, the Office of the Comptroller of the Currency (OCC)~~, TNB received a CRA rating of “Satisfactory.” On December 12, 2019,~~ has the ~~OCC and~~authority to approve applications by national banks to establish de novo branches, including, under the ~~FDIC released a proposal that would, among~~Riegle-Neal Act, in states other ~~things, establish a new evaluation framework to assess~~than the ~~distribution of an institution’s retail loans in major retail lending business lines within each assessment area and~~bank’s home state if the ~~value~~law of the ~~institution’s qualifying CRA activities relative~~state in which the branch is located, or is to ~~its retail domestic deposits, and~~be located, would ~~clarify the types of loans, investments, and services that are qualifying CRA activities. Management is reviewing the potential impact~~permit establishment of the ~~proposal on TNB.~~branch if the bank were a state bank chartered by such state.

~~Under provisions~~The BHC Act also generally requires FRB approval for a bank holding company’s acquisition of a company that is not an insured depository institution. Bank holding companies generally may engage, directly or indirectly, only in banking and such other activities as are determined by the FRB to be closely related to banking. Additionally, a provision of the BHC Act ~~referred to~~known as the ~~“Volcker~~Volcker Rule~~” limitations are placed~~ places limits on the ability of ~~certain insured depository institutions, insured depository institution holding companies and their affiliates (“banking entities”), including~~ Trustmark and TNB to acquire or retain ownership interests in, or act as sponsor to, certain investment funds, including hedge funds and private equity ~~funds. The Volcker Rule also places restrictions on~~funds, or to engage in proprietary trading ~~by a banking entity. In October 2019, five federal~~(i.e., engaging as principal in any purchase or sale of one or more financial ~~agencies finalized revisions to the Volcker Rule to simplify and tailor compliance requirements relating to the rule. The revisions replace the Volcker Rule’s compliance program requirements~~instruments for a ~~banking entity with~~ trading assets and liabilities of less than $1 billion, including Trustmark and TNB, with a rebuttable presumption of the entity’s compliance with the rule, and simplify compliance requirements associated with exempt market making, underwriting and risk-mitigating hedging activities for such an entity. The revisions also changed the “short-term intent” prong of the Volcker Rule’s definition of “trading account” by replacing the prong's presumption that financial instruments held for fewer than 60 days are for the trading account with a new presumption that financial instruments held for 60 days or more are not for the trading account. Finally, the revisions adopt an exclusion for customer-driven swaps and matched swaps from the proprietary trading restrictions of the Volcker Rule. Management is reviewing the potential impact of the revisions on Trustmark and TNB. The revisions became effective on January 1, 2020, with a compliance date of January 1, 2021, but banking organizations may voluntarily comply with the revisions earlier than the compliance date.account).

~~The OCC has the authority to approve applications by national banks to establish~~ ~~de novo~~ branches, including, under the Riegle-Neal Act, in states other than the bank’s home state if the law of the State in which the branch is located, or is to be located, would permit establishment of the branch if the bank were a State bank chartered by such State.

Certain acquisitions of Trustmark’s voting stock may be subject to regulatory approval or notice under federal law. ~~Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of Trustmark’s stock in excess of the amount that can be acquired without regulatory approval under~~Under the Change in Bank Control Act and ~~the~~ BHC Act, ~~which prohibit any~~a person or company ~~from acquiring~~that directly or indirectly acquires control of ~~Trustmark without, in most cases,~~a bank holding company or bank must obtain the ~~prior written~~non-objection or approval of the ~~FRB.~~institution’s appropriate federal banking agency in advance of the acquisition. For a publicly-traded bank holding company such as Trustmark, control for purposes of the Change in Bank Control Act is presumed to exist if the acquirer will have 10% or more of any class of the company’s voting securities.

Under the FDI Act, Trustmark is expected to act as a source of financial and managerial strength to TNB. Under this policy, a bank holding company is expected to commit resources to support its bank subsidiary, including at times when the holding company may not be inclined or in a financial position to provide it.

Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal bank regulatory agencies. Capital adequacy ~~regulations and, additionally for banks, prompt corrective action~~ regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. The FRB and the OCC, the primary regulators of Trustmark and TNB, respectively, have established substantially similar minimum risk-based capital ratio and leverage ratio ~~requirements.~~requirements for bank holding companies and banks.

Under capital requirements applicable to Trustmark and TNB, Trustmark and TNB are required to meet a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.0% (a minimum of 4.5% plus a capital conservation buffer of 2.5%), a Tier 1 capital to risk-weighted assets ratio of at least 8.5% (a minimum of 6.0% plus a capital conservation buffer of 2.5%), a total capital to risk-weighted assets ratio of at least 10.5% (a minimum of 8.0% plus a capital conservation buffer of 2.5%), and a leverage ratio of Tier 1 capital to total consolidated assets of at least 4.0%. In addition, for an insured depository institution to be “well-capitalized” under the banking agencies’ prompt corrective action framework, it must have a common equity Tier 1 capital ratio of 6.5%, Tier 1 capital ratio of 8.0%, a total capital ratio of 10.0%, and a leverage ratio of 5.0%, and must not be subject to any written agreement, order or capital directive, or prompt corrective action directive issued by its primary federal regulator to meet and maintain a specific capital level for any capital measure.

For purposes of calculating the denominator of the risk-based capital ratios, a banking institution’s assets and some of its specified off-balance sheet commitments and obligations are assigned to various risk categories. For purposes of calculating the numerator of the capital ratios, capital, at both the holding company and bank level, is classified in one of three tiers depending on the “quality” and loss-absorbing features of the capital instrument. Common equity Tier 1 capital is predominantly comprised of common stock instruments (including related surplus) and retained earnings, net of treasury stock, and after making necessary capital deductions and adjustments. Tier 1 capital is comprised of common equity Tier 1 capital and additional Tier 1 capital, which includes non-cumulative perpetual preferred stock and similar instruments meeting specified eligibility criteria (including related surplus) ~~and “TARP” preferred stock and other instruments issued under the Emergency Economic Stabilization Act of 2008.~~. Newly issued trust preferred securities and cumulative perpetual preferred stock may not be included in Tier 1 capital. Smaller depository institution holding companies (those with assets of less than $15 billion as of year-end ~~2009)~~2009, including Trustmark) and most mutual holding companies are generally allowed to continue to count as Tier 1 capital most outstanding trust preferred securities and other non-qualifying securities that were issued prior to May 19, 2010 (up to a limit of 25% of Tier 1 capital, excluding non-qualifying capital instruments) rather than phasing such securities out of regulatory capital. However, a smaller depository institution holding company ~~with less than $15 billion in assets~~ that ~~grows to~~has $15 billion or more in assets ~~as a result of~~following an acquisition of another depository institution holding company generally is no longer allowed to count outstanding non-qualifying capital instruments toward its Tier 1 capital. Trustmark currently has outstanding trust preferred securities that are permitted to continue to count as Tier 1 capital up to the regulatory limit. Total capital is comprised of Tier 1 capital and Tier 2 capital, which includes certain subordinated debt with a minimum original maturity of five years (including related surplus) and a limited amount of allowance for loan losses. Newly issued trust preferred securities and cumulative perpetual preferred stock generally

may be included in Tier 2 capital, provided they do not include features that are disallowed by the capital rules, such as the acceleration of principal other than in the event of a bankruptcy, insolvency, or receivership of the issuer.

In July 2019, the OCC, the FRB, and the FDIC issued a final rule intended to simplify aspects of the regulatory capital rules for banking organizations, such as Trustmark and TNB, that are not advanced approaches banking organizations. The final rule includes amendments to the capital treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests. Trustmark and TNB have adopted these amendments as of January 1, 2020. Management does not expect these amendments to have a material effect on Trustmark’s or TNB’s regulatory capital ratios.

Failure to meet minimum capital requirements could subject a bank to a variety of enforcement ~~remedies. The FDI Act identifies five~~remedies, including issuance of a capital ~~categories for insured depository institutions: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized~~directive, the termination of deposit insurance by the FDIC and critically undercapitalized. An insured depository institution is subject to differential regulation corresponding to the capital category within which the institution falls. The FDI Act requires banking regulators to take prompt corrective action whenever financial institutions do not meet minimum capital requirements. Failure to meet the capital guidelines could also subject an insured depository institution to capital raising requirements. In addition, an insured depository institution is generally prohibited from making capital distributions, including paying dividends, or paying management fees to a holding company, if the institution would thereafter be undercapitalized. In addition, the FDI Act requires the various regulatory agencies to prescribe certain noncapital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation, and permits regulatory action against an insured depository institution that does not meet such standards.

other restrictions on its business. An institution’s failure to exceed the capital conservation buffer with common equity Tier 1 capital would result in limitations on an institution’s ability to make capital distributions and discretionary bonus payments.

In addition, the FDI Act’s “prompt corrective action” framework identifies five capital categories for insured depository institutions: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. For an insured depository institution to be “well-capitalized,” it must have a common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 capital ratio of at least 8.0%, a total capital ratio of at least 10.0% and a leverage ratio of at least 5.0%, and must not be subject to any written agreement, order or capital directive or prompt corrective action directive issued by its primary federal regulator to meet and maintain a specific capital level for any capital measure. An insured depository institution is subject to differential regulation corresponding to the capital category within which the institution falls. For example, an insured depository institution is generally prohibited from making capital distributions, including paying dividends, or paying management fees to a holding company, if the institution would thereafter be undercapitalized.

At December 31, ~~2019,~~2022, Trustmark exceeded its minimum capital requirements with common equity Tier 1 capital, Tier 1 capital and total capital equal to ~~11.93%~~9.74%, ~~12.48%~~10.15% and ~~13.25%~~11.91% of its total risk-weighted assets, respectively. At December 31, ~~2019,~~2022, TNB also exceeded these requirements with common equity Tier 1 capital, Tier 1 capital and total capital equal to ~~12.30%~~10.34%, ~~12.30%~~10.34% and ~~13.07%~~11.26% of its total risk-weighted assets, respectively. At December 31, ~~2019,~~2022, the leverage ratios for Trustmark and TNB were ~~10.48%~~8.47% and ~~10.35%~~8.65%, respectively. ~~As of~~At December 31, ~~2019, the most recent notification from the OCC categorized~~2022, TNB aswas well-capitalized based on the ratios and guidelines described above.

In December 2018, the federal banking agencies issued a final rule that allows institutions to ~~revise their~~elect to phase in the regulatory capital ~~rules to address~~effects of the Current Expected Credit Losses (CECL) accounting standard over three years. In addition, as a result of the Coronavirus Aid, Relief, and ~~provide an option~~Economic Security Act (the CARES Act) enacted on March 27, 2020 in response to ~~phase~~the COVID-19 pandemic, the federal bank regulatory agencies issued rules that allow banking organizations that implemented CECL in 2020 to elect to mitigate the ~~day-one~~effects of the CECL accounting standard on their regulatory capital for two years. This two-year delay is in addition to the three-year transition period that the agencies had already made available. Trustmark elected to defer the regulatory capital effects of CECL in accordance with these rules, which largely delayed the effects of the adoption of ~~the~~ CECL accounting standard over three years. Under the final rule, an institution that is required to adopt the CECL accounting standard beginning the first quarter of 2020, such as Trustmark, can make a one-time election to phase in the effects of the accounting standard on its regulatory capital ~~calculations, such that the~~through December 31, 2021. The effects ~~of adopting the CECL accounting standard on regulatory capital~~ are fully phased in as of the first quarter of 2023. Based on Trustmark’s assessment of the CECL accounting standard and the impact of adoption on Trustmark’s consolidated financial statements and regulatory capital calculations, Trustmark did not make this one-time election to phase in the effects of the accounting standard on its regulatory capital calculations. For additional information regarding Trustmark’s implementation of the CECL accounting standard, see the section captioned “Pending Accounting Pronouncements – ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” included in Notebeing phased-in over a three-year period from January 1, ~~– Significant Accounting Policies – Accounting Policies Recently Adopted and Pending Accounting Pronouncements in Part II. Item 8. – Financial Statements and Supplementary Data of this report.~~2022 through December 31, 2024.

Trustmark is limited in its ability to pay dividends or repurchase its stock by the FRB, including if doing so would be an unsafe or unsound banking practice. ~~Where a bank holding company intends to declare or pay a dividend that could raise safety and soundness concerns, it generally will be required to inform and consult with~~In addition, the FRB ~~in advance. It is~~has adopted the policy ~~of the FRB~~ that a bank holding company should ~~generally~~ pay cash dividends ~~on common stock~~ only ~~out~~to the extent that the company’s net income for the past year is sufficient to cover the cash dividends, and that the company’s rate of ~~earnings, and only if prospective earnings~~earning retention is consistent with the company’s capital needs, asset quality and overall ~~current and prospective~~ financial condition.

~~According to guidance from the FRB, a bank holding company’s dividend policies will be assessed against, among other things, its ability to achieve applicable capital ratio requirements. If~~ In addition, a bank holding company ~~does not achieve applicable capital ratio requirements, it may not be able~~is required to ~~pay dividends. Although Trustmark currently meets applicable capital ratio requirements, inclusive~~consult with or notify the FRB prior to purchasing or redeeming its outstanding equity securities in certain circumstances, including if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of the ~~phased-in capital conservation buffer, Trustmark cannot be sure that it will continue to meet those requirements or that even if it does, it will be able to pay dividends.~~

Trustmark also is expected to consult, and in some cases obtain the approval of, the FRB in advance of redeeming or repurchasing its stock. In evaluating the appropriateness of a proposed redemption or repurchase of stock, the FRB will consider, among other things, the potential loss that acompany’s consolidated net worth. A bank holding company ~~may suffer~~that is well-capitalized, well-managed and not the subject of any unresolved supervisory issues is exempt from the prospective need to increase reserves and write down assets as a result of continued asset deterioration, and its ability to raise additional common equity and other capital to replace the stock that will be redeemed or repurchased. The FRB also will consider the potential negative effects on the bank holding company’s capital structure of replacing common stock with any lower-tier form of regulatory capital issued.this notice requirement.

Trustmark and TNB are subject to extensive laws and regulations aimed at combatting money laundering and terrorist ~~financing. The~~financing, including the USA Patriot Act of 2001 (USA Patriot Act) ~~substantially broadened~~and the scope of United States anti-money laundering laws and regulations by imposing significant compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. United States Department of the Treasury regulationsBank Secrecy Act. Regulations implementing ~~the USA Patriot Act~~these statutes impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers and of beneficial owners of their legal entity customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and financial consequences for the institution. The federal Financial Crimes Enforcement Network of the Department of the Treasury, in addition to federal bank regulatory agencies, is authorized to impose significant civil money penalties for violations of these requirements, and has recently engaged in coordinated enforcement efforts with state and federal banking regulators, the U.S. Department of Justice, the Consumer Financial Protection Bureau (CFPB), the Drug Enforcement Administration and the Internal Revenue Service. Violations of AML requirements can also lead to criminal penalties. In addition, the federal banking agencies are required to consider the effectiveness of a financial institution’s AML activities when reviewing proposed bank mergers and bank holding company acquisitions.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC ~~publishes~~administers and enforces economic and trade sanctions programs, including publishing lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. OFAC administers and enforces applicable economic and trade sanctions programs. These sanctions are usually targeted against foreign countries, terrorists, international narcotics traffickers and those believed to be involved in the proliferation of weapons of mass destruction. These regulations generally require either the blocking of accounts or other property of specified entities or individuals, but they may also require the rejection of certain transactions involving specified entities or individuals. Trustmark maintains policies, procedures and other internal controls designed to comply with these sanctions programs.

In addition to being regulated as a bank holding company, Trustmark is subject to regulation by the State of Mississippi under its general business corporation laws. Trustmark is also subject to the disclosure and other regulatory requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, as administered by the SEC.

TNB is a national bank and, as such, is subject to extensive regulation by the OCC and, to a lesser extent, by the FDIC. In addition, as a large provider of consumer financial services, TNB is subject to regulation, supervision, enforcement and examination by the ~~Consumer Financial Protection Bureau (CFPB).~~CFPB. Almost every area of the operations and financial condition of TNB is subject to extensive regulation and supervision and to various requirements and restrictions under federal and state law including loans, reserves, investments, issuance of securities, establishment of branches, capital adequacy, liquidity, earnings, dividends, management practices and the provision of services. TNB is subject to supervision, examination, enforcement and reporting requirements under the National Bank Act, the Federal Reserve Act, the FDI Act, regulations of the OCC and certain of the requirements imposed by the Dodd-Frank Act. Trustmark and TNB are also subject to a wide range of consumer protection laws and regulations.

National banks are limited in the amounts they may lend to one borrower and the amount they may lend to insiders. These single counterparty and insider lending limits extend to loans, derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. In addition, the FDI Act imposes restrictions on insured depository institutions’ purchases of assets from insiders.

Under section 22 of the Federal Reserve Act, as implemented by the FRB’s Regulation O, restrictions also apply to extensions of credit by a bank to its executive officers, directors, principal shareholders and their related interests, and to similar individuals at the holding company or affiliates. In general, such extensions of credit (i) may not exceed certain dollar limitations, (ii) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (iii) must not involve more than the normal risk of repayment or present other unfavorable features.

Sections 23A and 23B of the Federal Reserve Act establish parameters for an insured bank to conduct “covered transactions” with its affiliates, generally (i) limiting the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the bank’s capital stock and surplus, and limiting the aggregate of all such transactions with all affiliates to an amount equal to 20% of the bank’s capital stock and surplus, and (ii) requiring that all such transactions be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those that would be provided to a non-affiliate. In addition, an insured bank’s loans to affiliates must be fully collateralized. The term “covered transaction” includes the making of loans to the affiliate, purchase of assets from the affiliate, issuance of a guarantee on behalf of the affiliate and several other types of transactions.

The principal source of Trustmark’s cash revenue is dividends from TNB. There are various legal and regulatory provisions that limit the amount of dividends TNB can pay to Trustmark without regulatory approval. Under the National Bank Act, approval of the OCC is required if the total of all dividends declared in any calendar year exceeds the total of TNB’s net income for that year combined with its retained net income from the preceding two years. Also, under the National Bank Act, TNB may not pay any dividends in excess of undivided profits (retained earnings). ~~In addition, subsidiary banks~~

of less than “Satisfactory” may provide a basis for denial of such an application. Federal ~~Reserve Act~~regulations require, among other things, that evidence of discrimination against applicants on ~~extensions of credit to~~a prohibited basis, and illegal or abusive lending practices be considered in the ~~bank holding company or any~~CRA evaluation. As of its ~~subsidiaries. Further, subsidiary banks~~last examination from the OCC, TNB received a CRA rating of “Satisfactory.”

On May 5, 2022, the federal banking agencies issued a ~~bank holding company are prohibited from engaging in certain tie-in arrangements in connection with any extension~~proposed rule that would substantially revise how they evaluate an insured depository institution’s record of satisfying the credit ~~lease~~ needs of its entire communities, including low- and moderate- income individuals and neighborhoods, under the CRA. If this rule is finalized as proposed, it may become more challenging and/or sale of property or furnishing of any services to the bank holding company. Moreover, an institution’s failure to exceed the capital conservation buffer set forth in the capital rules with common equity Tier 1 capital would result in limitations on an institution’s ability to make capital distributions and discretionary bonus payments.

~~The Dodd-Frank Act established the CFPB within the Federal Reserve System as an independent bureau with responsibility~~costly for consumer financial protection. The CFPB is responsible for issuing rules, orders and guidance implementing federal consumer financial laws. The CFPB has primary enforcement authority over “very large” insured depository institutions, including TNB, to achieve an “Outstanding” or ~~insured credit unions and~~“Satisfactory” CRA rating, which could negatively impact their affiliates. An insured depository institution is deemed “very large” if it reports assets of more than $10.0 billion in its quarterly Call Report for four consecutive quarters. The CFPB has near exclusive supervision authority, including examination authority, over these “very large” institutions and their affiliates to assess compliance with federal consumer financial laws,ability to obtain ~~information about~~regulatory approval for an acquisition.

TNB is subject to a number of federal and state laws designed to protect customers and promote lending to various sectors of the ~~institutions’~~economy and population. These consumer protection laws apply to a broad range of TNB’s activities and ~~compliance systems~~to various aspects of its business, and ~~procedures,~~include laws relating to interest rates, fair lending, disclosures of credit terms and estimated transaction costs to ~~detect~~consumer borrowers, debt collection practices, the use of and ~~assess risks~~the provision of information to ~~consumers~~consumer reporting agencies and ~~markets. The CFPB has broad authority to prevent “unfair,~~the prohibition of unfair, deceptive or abusive acts or practices” and ensure consistent enforcement of laws so that all consumers have access to markets for consumer financial products and services that are fair, transparent and competitive. The CFPB has rulemaking and interpretive authority underpractices in connection with the ~~Dodd-Frank Act and other federal consumer financial services laws, as well as broad supervisory, examination and enforcement authority over large providers~~offer, sale or provision of consumer financial products and ~~services, such as TNB. TNB’s total assets exceeded $10.0 billion for the four quarters ended December 31, 2019, and therefore, TNB is subject to CFPB supervision.~~

In October 2017, the CFPB issued a final rule generally requiring lenders that make certain covered short-term loans, longer-term balloon-payment loans, or longer-term loans with certain costs and features, to reasonably determine that a borrower of a covered loan has the ability to repay such a loan, make certain disclosures to the borrower before attempting to withdraw payment from the borrower’s account, forego from making three consecutive attempts to withdraw payments and report covered loans to registered information systems. In June 2019, the CFPB issued a final rule to delay from the third quarter of 2019 to the fourth quarter of 2020 the compliance date of the 2017 final rule’s requirements for a lender to determine a consumer’s ability to repay a covered loan and report covered loans to registered information systems. In February 2019, the CFPB issued a proposal that would rescind such requirements. Based on TNB’s current credit portfolio, any covered loans made by TNB are considered exempt “accommodation loans” under the CFPB’s 2017 final rule, and accordingly, Trustmark does not expect that the 2017 final rule, the June 2019 final rule, or the February 2019 proposal will have a material impact on its operations.

~~Banking organizations are subject to numerous laws and regulations intended to protect consumers in addition to those discussed above.~~services. These laws include ~~among others:~~the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, ~~(TILA); Truth in Savings Act; Electronic Funds Transfer Act (EFTA); Expedited Funds Availability Act; Equal Credit Opportunity Act; Fair and Accurate Credit Transactions Act; Fair Housing~~

~~Act; Fair Credit Reporting Act; Fair Debt Collection Act; Gramm-Leach-Bliley Act;~~the Home Mortgage Disclosure ~~Act; Right to Financial Privacy Act;~~Act, the Real Estate Settlement Procedures ~~Act;~~Act, the Fair Debt Collection Practices Act and their state law counterparts. At the federal level, most consumer financial protection laws ~~regarding unfair~~are administered by the CFPB, which supervises TNB.

Violations of applicable consumer protection laws can result in significant potential liability, including actual damages, restitution and ~~deceptive acts~~injunctive relief, from litigation brought by customers, state attorneys general and ~~practices;~~other plaintiffs, as well as enforcement actions by banking regulators and ~~usury laws.~~reputational harm.

Many states and local jurisdictions have consumer protection laws analogous, and in addition to, those listed above. While TNB’s activities are governed primarily by federal law, the Dodd-Frank Act potentially narrowed National Bank Act preemption of state consumer financial laws, thereby making TNB and other national banks potentially subject to increased state regulation. The Dodd-Frank Act also codified the Supreme Court’s decision in Cuomo v. Clearing House Association. As a result, State Attorneys General may enforce in a court action “an applicable law” against federally-chartered depository institutions like TNB. In addition, under the Dodd-Frank Act, ~~State Attorneys General~~state attorneys general are authorized to bring civil actions against federally-chartered institutions, like TNB, to enforce regulations prescribed by the CFPB or to secure other remedies.

Finally, the Dodd-Frank Act potentially expanded state regulation over banks by eliminating National Bank Act preemption for national bank operating subsidiaries, including operating subsidiaries of TNB.

The Dodd-Frank Act imposed new standards for mortgage loan originations on lenders. The statute amended TILA to restrict the payment of fees to real-estate mortgage originators. Furthermore, the statute amended TILA to impose minimum underwriting standards on real-estate mortgage creditors (including nonbanks as well as bank creditors) and verifications to check borrowers’ income and their ability to repay.

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (GLB Act) imposed requirements related to the privacy of customer financial information. In accordance with the GLB Act, federal bank regulators adopted rules that limit the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The GLB Act also requires disclosure of privacy policies to consumers and, in some circumstances, allows consumers to prevent disclosure of certain personal information to a nonaffiliated third party. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. Trustmark recognizes the need to comply with legal and regulatory requirements that affect its customers’ privacy.

In addition, the federal banking agencies pay close attention to the cybersecurity practices of banks, and the agencies include review of an institution’s information technology and its ability to thwart cyberattacks in their examinations. An institution’s failure to have adequate cybersecurity safeguards in place can result in supervisory criticism, monetary penalties and/or reputational harm. Additionally, federal banking agencies issued a final rule in November 2021 which requires banking organizations to notify their primary federal regulator of significant computer security incidents within 36 hours of determining that such an incident has occurred.

The FRB has issued rules under the ~~EFTA,~~Electronic Fund Transfer Act (EFTA), as amended by the Dodd-Frank Act, to limit interchange fees that an issuer with $10.0 billion or more in assets, such as TNB, may receive or charge for an electronic debit card transaction. Under the FRB’s rules, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction and five basis points multiplied by the value of the transaction. In addition, the FRB’s rules allow for an upward

adjustment of no more than one cent to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the rule.

~~Issuers~~The FRB also has established rules governing routing and exclusivity that ~~together with their affiliates, have assets of less than $10.0 billion~~require debt card issuers to offer two unaffiliated networks for routing transactions on ~~the annual measurement date (December 31) are exempt from the~~each debit card interchange fee standards. Since the December 31, 2013 annual measurement date, Trustmark has had assets greater than $10.0 billion; and, therefore, is required to comply with the debit card interchange fee standards.or prepaid product.

The deposits of TNB are insured by the Deposit Insurance Fund (DIF), as administered by the FDIC, and, accordingly, are subject to deposit insurance assessments to maintain the DIF at minimum levels required by statute. ~~The Dodd-Frank Act increased the minimum reserve ratio requirement for the DIF to 1.35% of total estimated insured deposits or the comparable percentage of the deposit assessment base.~~

The FDIC uses a risk-based assessment system that imposes insurance premiums as determined by multiplying an insured bank’s assessment base by its assessment rate. ~~The Dodd-Frank Act revised the~~A bank’s deposit insurance assessment base ~~to be~~is generally equal to athe bank’s total assets minus ~~the sum of (1)~~ its average tangible equity during the assessment ~~period, and (2) any additional amount the FDIC determines is warranted for custodial and banker’s banks.~~period.

The FDIC determines a bank’s assessment rate within a range of base assessment rates using a risk scorecard that takes into account the bank’s financial ratios and supervisory rating (the CAMELS composite rating), among other factors. The CAMELS rating system is a supervisory rating system developed to classify a bank’s overall condition by taking into account capital adequacy, assets, management capability, earnings, liquidity and sensitivity to market and interest rate risk.

In The methodology that the ~~third quarter~~FDIC uses to calculate assessment amounts is also based on the FDIC’s designated reserve ratio, which is currently 2.0%. Since the outbreak of ~~2018,~~the COVID-19 pandemic, the amount of total estimated insured deposits has grown rapidly while the funds in the DIF have grown at a normal rate, causing the DIF reserve ratio ~~reached~~to fall below the ~~statutorily required~~statutory minimum ~~level~~ of 1.35%~~, which ended surcharges on institutions with $10.0 billion or more~~. The FDIC adopted a restoration plan in ~~assets, such as Trustmark, that had been in effect.~~

~~TNB’s~~September 2020, to restore the DIF reserve ratio to at least 1.35% by September 30, 2028. On October 18, 2022, the FDIC ~~assessment expenses declined during 2018 as the lower regular~~adopted a final rule to increase initial base deposit insurance assessment rates for insured depository institutions by 2 basis points, beginning with the first quarterly assessment period of 2023. The increased assessment rate schedules will remain in effect unless and until the ~~allowable adjustments more than offset~~DIF reserve ratio meets or exceeds 2.00%. As a result of the ~~surcharge~~new rule, the FDIC insurance costs of ~~4.5 cents per $100~~insured depository institutions, including TNB, will generally increase.

The FDIC may terminate the deposit insurance of ~~assessment base~~any insured depository institution, including the TNB, if the FDIC determines after a hearing that ~~had been~~the institution has engaged or is engaging in ~~effect.~~ unsafe or unsound banking practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. The FDIC also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance if the institution has no tangible capital.

In ~~2019,~~2022, TNB’s expenses related to deposit insurance premiums totaled ~~$6.4~~$7.4 million.

~~The Dodd-Frank Act permanently increased the deposit insurance level to $250 thousand per depositor for each insured depository institution.~~

TNB’s nonbanking subsidiaries are subject to a variety of state and federal laws and regulations. ~~TIA, a registered investment adviser, is subject to regulation by the SEC under the Investment Advisers Act of 1940 and by the State of Mississippi.~~ FBBI is subject to the insurance laws and regulations of the states in which it is active. SCC is subject to the supervision and regulation of the CDFI Fund and the State of Mississippi.

The GLB Act authorizes national banks to own or control a “financial subsidiary” that engages in activities that are not permissible for national banks to engage in directly. The GLB Act contains a number of provisions dealing with insurance activities by bank subsidiaries. Generally, the GLB Act affirms the role of the states in regulating insurance activities, including the insurance activities of financial subsidiaries of banks, but the GLB Act also preempts certain state laws. As a result of the GLB Act, TNB elected for predecessor subsidiaries that now constitute FBBI to become financial subsidiaries. This enables FBBI to engage in insurance agency activities at any location.

Trustmark’s internet address is www.trustmark.com. Information contained on this website is not a part of this report. Trustmark makes available through this address, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed, or furnished to, the SEC.

At December 31, ~~2019,~~2022, Trustmark employed ~~2,844~~2,738 full-time equivalent associates, none of which are represented by a collective bargaining agreement. Trustmark believes its employee relations to be satisfactory.

~~The~~As of the filing date, the executive officers of Trustmark and its primary bank subsidiary, TNB, including their ages, positions and principal occupations for the last five years are as follows:

~~Treasurer and~~ Principal ~~Financial~~Accounting Officer since ~~January 2007~~March 2021

Executive Vice President and Chief ~~Financial~~Accounting Officer since ~~February 2007~~

~~Executive~~Senior Vice President ~~Secretary, General Counsel~~ and ~~Chief Risk Officer since June 2016~~Controller from March 2009 to February 2021

~~Executive Vice President, Secretary and General Counsel from December 2015 to June 2016~~

Executive Vice President and Real Estate Banking Manager from May 2017 to April 2019

Senior Vice President and Corporate Commercial Real Estate Manager from October 2008 to May 2017

Treasurer and ~~Chief Credit~~Principal Financial Officer since March ~~2010~~2021

Executive Vice President ~~and Chief Information Officer~~ since ~~December 2018~~2013

~~President – Insurance and Wealth Management~~Chief Administrative Officer since ~~November 2017~~January 2021

~~President – Insurance Services~~Chief Risk Officer from ~~March 2012~~June 2016 to November ~~2017~~2021

OnGeneral Counsel from December ~~10, 2019, Trustmark announced that the Board of Directors of Trustmark appointed Gerard R. Host~~2015 to succeed R. Michael Summerford as Chairman of the Board of Trustmark effective April 28, 2020, the date of the 2020 Annual Shareholders’ Meeting. Additionally, on December 10, 2019, the Board of Directors of TNB appointed Duane A. Dewey to serve asNovember 2021

to continue to serve as Chief Operating Officer of TNB effective January 1, 2020. Mr. Host will continue to serve as President and Chief Executive Officer of Trustmark and as Chief Executive Officer of TNB.

Trustmark and its subsidiaries could be adversely impacted by various risks and uncertainties, which are difficult to predict. As a financial institution, Trustmark has significant exposure to market risks, including interest rate risk, liquidity risk and credit risk. This section includes a description of the risks, uncertainties and assumptions identified by Management that could, individually or in combination, materially affect Trustmark’s financial condition and results of operations, as well as the value of Trustmark’s financial instruments in general, and Trustmark common stock, in particular. Additional risks and uncertainties that Management currently deems immaterial or is unaware of may also impair Trustmark’s financial condition and results of operations. This report is qualified in its entirety by the risk factors that are identified below.

Trustmark’s largest source of revenue (net interest income) is subject to interest rate risk.

Trustmark’s profitability depends to a large extent on net interest income, which is the difference between income on interest-earning assets, such as loans and investment securities, and expense on interest-bearing liabilities, such as deposits and borrowings. Trustmark is exposed to interest rate risk in its core banking activities of lending and deposit taking, since assets and liabilities reprice at different times and by different amounts as interest rates change. Trustmark is unable to predict changes in market interest rates, which are affected by many factors beyond Trustmark’s control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. ~~During October 2019,~~Market interest rates began to rise during 2022 after an extended period at historical lows. Starting in March 2022, the FRB ~~lowered~~began raising the target ~~range for the~~ federal funds rate for the ~~third~~first time in ~~2019~~three years and continued with multiple increases throughout 2022, up to a range of 4.25% to 4.50% as ~~anticipated. While recently-released~~of December 2022. The FRB ~~minutes indicate~~also signaled the possibility of additional rate increases throughout 2023. In addition, the FRB increased the interest that ~~a majority~~it pays on reserves multiple times during 2022 from 0.10% to 4.40% as of December 2022. The prolonged period of reduced interest rates has had and may continue to have an adverse effect on net interest income and margins and profitability for financial institutions, including Trustmark. Additionally, as interest rates have increased, so have competitive pressures on the ~~Board believe that there is not a need to cut rates further, the level~~deposit cost of ~~future rates will likely depend upon the performance of the economy.~~funds. It is not possible to predict the pace and magnitude of changes toin interest rates, or the impact rate changes will have on ~~Trustmark’s~~Trustmark's results of operations.

Financial simulation models are the primary tools used by Trustmark to measure interest rate exposure. Using a wide range of scenarios, Management is provided with extensive information on the potential impact to net interest income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Trustmark’s balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of ~~Trustmark��s~~Trustmark’s balance sheet, resulting from both strategic plans and customer behavior. In addition, the model incorporates Management’s assumptions and expectations regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates. Trustmark’s simulation model using static balances at December 31, ~~2019,~~2022, estimated that in the event of a hypothetical 200 basis point increase in interest rates, net interest income may increase ~~5.7%~~3.3%, while a hypothetical 100 basis point increase in interest rates, may increase net

interest income ~~3.0%~~1.7%. In the event of a hypothetical 100 basis point decrease in interest rates using static balances at December 31, ~~2019,~~2022, it is estimated net interest income may decrease by ~~5.2%~~1.8%.

Net interest income is Trustmark’s largest revenue source, and it is important to discuss how Trustmark’s interest rate risk may be influenced by the various factors shown below:

Financial instruments do not respond in a parallel fashion to rising or falling interest rates. This causes asymmetry in the magnitude of changes in net interest income, net economic value and investment income resulting from the hypothetical increases and decreases in interest rates. Therefore, Management monitors interest rate risk and adjusts Trustmark’s investment, funding and hedging strategies to mitigate adverse effects of interest rate shifts on Trustmark’s balance sheet.

Trustmark utilizes derivative contracts to hedge the mortgage servicing rights (MSR) in order to offset changes in fair value resulting from changes in interest rate environments. In spite of Trustmark’s due diligence in regard to these hedging strategies, significant risks are involved that, if realized, may prove such strategies to be ineffective, which could adversely affect Trustmark’s financial condition or results of operations. Risks associated with these strategies include the risk that counterparties in any such derivative and other hedging transactions may not perform; the risk that these hedging strategies rely on Management’s assumptions and projections regarding these assets and general market factors, including prepayment risk, basis risk, market volatility and changes in the shape of the yield curve, and that these assumptions and projections may prove to be incorrect; the risk that these hedging strategies do not adequately mitigate the impact of changes in interest rates, prepayment speeds or other forecasted inputs to the hedging model; and the risk that the models used to forecast the effectiveness of hedging instruments may project expectations that differ from actual results. In addition, increased regulation of the derivative markets may increase the cost to Trustmark to implement and maintain an effective hedging strategy.

Trustmark closely monitors the sensitivity of net interest income and investment income to changes in interest rates and attempts to limit the variability of net interest income as interest rates change. Trustmark makes use of both on- and off-balance sheet financial instruments to mitigate exposure to interest rate risk.

~~Trustmark’s business~~Trustmark may be adversely affected by ~~conditions in~~ the ~~financial markets and economic conditions in general.~~

~~The economy continued to show moderate signs of improvement in 2019; however, economic concerns remain~~transition from the London Interbank Offered Rate (LIBOR) as a ~~result~~reference rate.

In 2017, the United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced that after the end of 2021 it would no longer compel banks to submit the ~~cumulative weight~~rates required to calculate LIBOR. On March 5, 2021, the FCA confirmed that the publication of ~~volatility~~most LIBOR term rates will end on June 30, 2023 (excluding one-week U.S. LIBOR and two-month U.S. LIBOR, the publication of which ended on December 31, 2021). The Alternative Reference Rates Committee (ARRC), a committee of U.S. financial market participants, has identified the Secured Overnight Financing Rate (SOFR) as the reference rate that represents best practice as the alternative to LIBOR for use in ~~crude oil prices~~derivatives and ~~uncertain growth prospects in emerging~~other financial contracts that are currently indexed to USD-LIBOR. However, there are conceptual and technical differences between LIBOR and SOFR. The federal banking agencies encouraged banking organizations to cease entering into new contracts that use US$ LIBOR as a reference rate by no later than December 31, 2021, and to ensure existing contracts have robust fallback language that includes a clearly defined alternative reference rate. Market participants are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets ~~combined with uncertainty regarding the potential monetary policy changes by~~exposed to LIBOR. On December 16, 2022, the FRB adopted a final rule that implements the ~~consequences of the decision of the United Kingdom to exit the European Union, the potential impact~~Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on the economy of the current United States presidential administration’s policies and United States trade relations, particularly with China. Doubts surrounding the near-term direction of global markets, and the potential impact of these trends on the United States economy, are expected to persist for the near term. While Trustmark’s customer base is wholly domestic, international economic conditions affect domestic conditions, and thus may have an impact upon Trustmark’s financial condition or results of operations. While domestic demand for loans has improved, further meaningful gains will depend on sustained economic growth. Strategic risk, including threats to business models from rising rates and modest economic growth, remains high. Management’s ability to plan, prioritize and allocate resources in this new environment will be critical to Trustmark’s ability to sustain earningsSOFR that will ~~attract capital. Because~~replace LIBOR in certain financial contracts after June 30, 2023. While the benchmark provider for US$ LIBOR (which was typically the benchmark that Trustmark used) intends to provide the benchmark for some tenors of ~~the complexities presented by current economic conditions, Management~~US$ LIBOR through June 2023, Trustmark has transitioned to SOFR for new variable rate loans, derivative contracts, borrowings and other financial instruments as of January 1, 2022.

Trustmark has a significant number of existing loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. Since alternative reference rates are calculated differently than LIBOR, payments under contracts referencing new alternative reference rates will differ from those referencing LIBOR. The transition has changed and will continue to ~~be challenged in identifying alternative sources of revenue, prudently diversifying assets, liabilities and revenue and effectively managing the costs of compliance.~~

Interest rates remain within a low range that, when combined with the extended period of historically low interest rates in recent years, continue to place pressure on net interest margins for Trustmark (as well as its competitors). Any further declines in interest rates will place additional competitive pressure on net interest margins. Conversely, increases in interest rates will place competitive pressures on the deposit cost of funds. It is not possible to predict the pace and magnitude ofchange, Trustmark’s market risk profiles, requiring changes to ~~interest rates, or~~risk and pricing models, valuation tools, product design and hedging strategies. Trustmark cannot predict what the ultimate impact ~~rate changes~~of the transition from LIBOR will ~~have on Trustmark’s results of operations.~~

~~Despite recent optimism resulting from stabilization in~~be; however, failure to adequately manage the housing sector, improvement of unemployment data and credit quality improvement, Trustmark does not assume that current uncertain conditions in the economy will improve significantly in the near future. A further weakened economy could affect Trustmark in a variety of substantial and unpredictable ways. In particular, Trustmark may face the following risks in connection with these events:

It is difficult to predict the extent to which these challenging economic conditions will persist or whether recent progress in the economic recovery will instead shift to the potential for further decline. If the economy does weaken in the future, it is uncertain how Trustmark’s business would be affected and whether Trustmark would be able successfully to mitigate any such effects on its business. Accordingly, these factors in the United States (and, indirectly, global) economytransition could have a material adverse effect on Trustmark’s business, financial condition, ~~and~~ results of ~~operations.~~operations and reputation with its customers.

Trustmark is subject to lending risk, which could impact the adequacy of the allowance for ~~loan~~credit losses and results of operations.

There are inherent risks associated with Trustmark’s lending activities. While the housing and real estate markets have shown continued improvement, ~~they remain at depressed levels in certain regions. If~~if trends in the housing and real estate markets were to revert or further decline below recession levels, Trustmark may experience higher than normal delinquencies and credit losses. Moreover, if the United States economy returns to a recessionary state, Management expects that it could severely affect economic conditions in Trustmark’s market areas and that Trustmark could experience significantly higher delinquencies and credit losses. In addition, bank regulatory agencies periodically review Trustmark’s allowance for ~~loan~~credit losses and may require an increase in the provision for ~~loan~~credit losses or the recognition of further charge-offs, based on judgments different from those of Management. As a result, Trustmark may elect, or be required, to make further increases in its provision for ~~loan~~credit losses in the future, particularly if economic conditions deteriorate.

Additionally, Trustmark may rely on information furnished by or on behalf of customers and counterparties in deciding whether to extend credit or enter into other transactions. This information could include financial statements, credit reports, business plans, and other information. Trustmark may also rely on representations of those customers, counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports, or other information could have a material adverse impact on Trustmark’s business, financial condition, and results of operations.

Trustmark is subject to environmental liability risk associated with lending activities.

A significant portion of Trustmark’s loan portfolio is secured by real property. During the ordinary course of business, Trustmark forecloses on and takes title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, Trustmark may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require Trustmark to incur substantial expenses and may materially reduce the affected property’s value or limit Trustmark’s ability to use or ability to sell the affected property or to repay the indebtedness secured by the property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase Trustmark’s exposure to environmental liability. Environmental reviews of nonresidential real estate before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on Trustmark’s business, financial condition and results of operations.

Declines in asset values may result in credit losses and adversely affect the value of Trustmark’s investments.

Trustmark maintains an investment portfolio that includes, among other asset classes, obligations of states and municipalities, agency debt securities and agency mortgage-related securities. The market value of investments in Trustmark’s investment portfolio may be affected by factors other than interest rates or the underlying performance of the issuer of the securities, such as ratings downgrades, adverse changes in the business climate and a lack of pricing information or liquidity in the secondary market for certain investment securities. In addition, government involvement or intervention in the financial markets or the lack thereof or market perceptions regarding the existence or absence of such activities could affect the market and the market prices for these securities.

On a quarterly basis, Trustmark evaluates investments and other assets for expected credit losses. At December 31, 2022, gross unrealized losses on securities for which an allowance for credit losses has not been recorded totaled $335.0 million. Trustmark may be required to record credit loss expense if these investments suffer a decline in value that is the result of a credit loss. If Trustmark determines that a credit loss exists, the credit portion of the allowance would be measured using a discounted cash flow (DCF) analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss Trustmark may record is limited to the amount by which the amortized cost exceeds the fair value, which could have a material adverse effect on results of operations in the period in which a credit loss, if any, occurs.

Trustmark is subject to liquidity risk, which could disrupt its ability to meet its financial obligations.

Liquidity refers to Trustmark’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations, including demand for loans and deposit withdrawals, funding operating costs and other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ or when assets cannot be liquidated at fair market value as needed. Trustmark obtains funding through deposits and various short-term and long-term wholesale borrowings, including federal funds purchased and securities sold under repurchase agreements, the Federal Reserve Discount Window (Discount Window) and Federal Home Loan Bank (FHLB) advances. Any significant restriction or disruption of Trustmark’s ability to obtain funding from these or other sources could have a negative effect on Trustmark’s ability to satisfy its current and future financial obligations, which could materially affect Trustmark’s financial condition or results of operations.

In addition to the risk that one or more of the funding sources may become constrained due to market conditions unrelated to Trustmark, there is the risk that Trustmark’s credit profile may decline such that one or more of these funding sources becomes partially or wholly unavailable to Trustmark.

Trustmark attempts to quantify such credit event risk by modeling bank specific and systemic scenarios that estimate the liquidity impact. Trustmark estimates such impact by attempting to measure the effect on available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets. To mitigate such risk, Trustmark maintains available lines of credit with the Federal Reserve Bank of Atlanta and the FHLB of Dallas that are secured by loans and investment securities. Management continuously monitors Trustmark’s liquidity position for compliance with internal policies.

Trustmark’s business may be adversely affected by conditions in the financial markets and economic conditions in general.

Economic activity continued to improve during 2022 as COVID-19 cases declined across the United States and restrictions were lifted; however, economic concerns remain as a result of the cumulative weight of uncertainty regarding the long-term effectiveness of the COVID-19 vaccine and the potential economic impact of recent geopolitical developments, such as Russia's invasion of Ukraine. Inflation has become elevated, reflecting supply and demand imbalances related to the pandemic, supply chain issues, higher energy prices and broader price pressures. Doubts surrounding the near-term direction of global markets, and the potential impact of these trends on the United States economy, are expected to persist for the near term. While Trustmark’s customer base is wholly domestic, international economic conditions affect domestic conditions, and thus may have an impact upon Trustmark’s financial condition or results of operations. Strategic risk, including threats to business models from rising rates and modest economic growth, remains high. Management’s ability to plan, prioritize and allocate resources in this new environment will be critical to Trustmark’s ability to sustain earnings that will attract capital. Because of the complexities presented by current economic conditions, Management will continue to be challenged in identifying alternative sources of revenue, prudently diversifying assets, liabilities and revenue and effectively managing the costs of compliance.

Market interest rates rose during 2022 after an extended period at historical lows. The prolonged period of reduced interest rates in recent years, has and may continue to place pressure on net interest margins for Trustmark (as well as its competitors). Conversely, as interest rates rise, so do competitive pressures on the deposit cost of funds. It is not possible to predict the pace and magnitude of changes to interest rates, or the impact rate changes will have on Trustmark’s results of operations.

Trustmark does not assume that current uncertain conditions in the economy will improve significantly in the near future. A weakened economy could affect Trustmark in a variety of substantial and unpredictable ways. In particular, Trustmark may face the following risks in connection with these events:

It is difficult to predict the extent to which these challenging economic conditions will persist or whether recent progress in the economic recovery will instead shift to the potential for further decline. If the economy does weaken in the future, it is uncertain how Trustmark’s business would be affected and whether Trustmark would be able successfully to mitigate any such effects on its business. Accordingly, these factors in the United States (and, indirectly, global) economy could have a material adverse effect on Trustmark’s financial condition and results of operations.

Trustmark faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have greater financial resources. Such competitors primarily include banks, as well as community banks operating nationwide and regionally within the various markets in which Trustmark operates. Trustmark also faces competition from many other types of financial institutions, including savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries. Additionally, fintech developments, such as blockchain and other distributed ledger technologies, have the potential to disrupt the financial industry and change the way banks do business. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.

Some of Trustmark’s competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many of Trustmark’s larger competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than Trustmark.

Trustmark’s ability to compete successfully depends on a number of factors, including: the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; the ability to continue to expand Trustmark’s market position through organic growth and acquisitions; the scope, relevance and pricing of products and services offered to meet customer needs and demands; the rate at which Trustmark introduces new products and services relative to its competitors; and industry and general economic trends. Failure to perform in any of these areas could significantly weaken Trustmark’s competitive position, which could adversely affect Trustmark’s financial condition or results of operations.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. As a result, defaults by, or questions or rumors about, one or more financial services institutions or the financial services industry in general, could lead to market-wide liquidity problems, which could, in turn, lead to defaults or losses by Trustmark and by other institutions. Trustmark has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, mutual funds, and other institutional clients. Many of these transactions expose Trustmark to credit risk in the event of default of its counterparty or client. In addition, Trustmark’s credit risk may be exacerbated when the collateral it holds cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure owed to Trustmark. Losses related to these credit risks could materially and adversely affect Trustmark’s results of operations.

Trustmark is subject to extensive government regulation and supervision and possible enforcement and other legal actions.

Trustmark, primarily through TNB and certain nonbank subsidiaries, is subject to extensive federal and state regulation and supervision, which vests a significant amount of discretion in the various regulatory authorities. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders. These regulations and supervisory guidance affect Trustmark’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation

or implementation or statutes, regulations, policies and supervisory guidance, could affect Trustmark in substantial and unpredictable ways. Such changes could subject Trustmark to additional costs, limit the types of financial services and products Trustmark may offer and/or increase the ability of nonbanks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, civil money penalties, other sanctions by regulatory agencies and/or reputational damage. In this regard, government authorities, including bank regulatory agencies, continue to pursue enforcement agendas with respect to compliance and other legal matters involving financial activities, which heightens the risks

associated with actual and perceived compliance failures. Any of the foregoing could have a material adverse effect on Trustmark’s financial condition or results of operations.

Trustmark is subject to numerous laws designed to protect consumers, including fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under fair lending laws and regulations could result in a wide variety of direct or indirect negative consequences, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on geographic expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on Trustmark’s business, financial condition or results of operations. In 2021, TNB settled a fair lending enforcement action with the Department of Justice, the OCC and the CFPB and incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents of majority-Black and Hispanic neighborhoods in the Memphis metropolitan statistical area. Trustmark and TNB could be subject to other enforcement actions in the future.

In addition, financial institutions face scrutiny on actions and policies that are deemed to adversely impact consumers under the Dodd-Frank Act’s prohibition against unfair, deceptive or abusive acts and practices and Section 5 of the Federal Trade Commission Act’s prohibition against unfair or deceptive acts and practices. Bank regulators and the CFPB are responsible for enforcing these prohibitions against banking organizations. These prohibitions have been applied to prohibit perceived customer abuse in connection with a range of products, services, and practices, including account openings and fees charged where inadequate or no services are rendered for which charges were imposed, as well as other instances where consumers may have been misled through bank disclosures. In addition, the enforcement priorities of the agencies enforcing consumer protection laws have evolved over time and may continue to do so.

Failure by Trustmark to perform satisfactorily on its CRA evaluations could make it more difficult for Trustmark’s business to grow.

The performance of a bank under the CRA in meeting the credit needs of its community is a factor that must be taken into consideration when the federal banking agencies evaluate applications related to mergers and acquisitions, as well as branch opening and relocations. If TNB is unable to maintain at least a “Satisfactory” CRA rating, its ability to complete the acquisition of another financial institution or open a new branch will be adversely impacted. If TNB received an overall CRA rating of less than “Satisfactory,” the FDIC would not re-evaluate its rating until its next CRA examination, which may not occur for several more years, and it is possible that a low CRA rating would not improve in the future. As of its last examination, TNB received a CRA rating of “Satisfactory.”

Under the regulatory capital rules of the FRB, OCC, and FDIC that implement a set of capital requirements issued by the Basel Committee on Banking Supervision known as Basel III, Trustmark and TNB are required to maintain a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.0% (a minimum of 4.5% plus a capital conservation buffer of 2.5%), a Tier 1 capital to risk-weighted assets ratio of at least 8.5% (a minimum of 6.0% plus a capital conservation buffer of 2.5%), a total capital to risk-weighted assets ratio of at least 10.5% (a minimum of 8.0% plus a capital conservation buffer of 2.5%) and a leverage ratio of Tier 1 capital to total consolidated assets of at least 4.0%. In addition, for TNB to be “well-capitalized” under the banking agencies’ prompt corrective action framework, it must have a common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 capital ratio of at least 8.0%, a total capital ratio of at least 10.0% and a leverage ratio of at least 5.0%, and must not be subject to any written agreement, order or capital directive, or prompt corrective action directive issued by its primary federal regulator to meet and maintain a specific capital level for any capital measure.

The capital rules also include stringent criteria for capital instruments to qualify as Tier 1 or Tier 2 capital. For instance, the rules effectively disallow ~~newly-issued~~newly issued trust preferred securities to be a component of a holding company’s Tier 1 capital. Trustmark will continue to count $60.0 million in outstanding trust preferred securities issued by the Trust as Tier 1 capital up to the regulatory limit, as permitted by a grandfather provision in the capital rules, but this grandfather provision may cease to apply if Trustmark ~~grows to $15 billion or more in total assets as a result of~~consummates an acquisition of a depository institution holding ~~company.~~company and the resulting organization has $15 billion of more in total assets.

~~Additionally, the~~ Financial Accounting Standards Board (FASB) Accounting Standard ~~Update (ASU) 2016-13, “Financial~~Codification (ASC) Topic 326, “Financial Instruments-Credit ~~Losses (Topic 326):~~Losses: Measurement of Credit Losses on Financial Instruments,,” ~~which implements CECL as a new impairment model based on expected credit losses, will require~~requires Trustmark to recognize all expected credit losses over the life of a loan based on historical experience, current conditions and reasonable and supportable forecasts. ~~CECL~~FASB ASC Topic 326 generally is expected to result in earlier recognition of credit losses, which would increase reserves and decrease capital. Additionally, the ~~CECL~~allowance for credit losses model could be materially impacted by changes in current and forecasted macroeconomic conditions. It is not possible to predict the timing or magnitude of changes in macroeconomic conditions or the impact such changes could have on

Trustmark’s allowance for ~~expected~~ credit losses; however, material changes in the allowance for ~~expected~~ credit losses could have a material impact on Trustmark’s reserves and capital.

The regulatory capital rules applicable to Trustmark and TNB may continue to evolve as a result of new requirements established by the Basel Committee on Banking Supervision or legislative, regulatory or accounting changes in the United States. Management cannot predict the effect that any changes to current capital requirements would have on Trustmark and TNB.

Trustmark’s use of third-party service providers and Trustmark’s other ongoing third-party business relationships are subject to increasing regulatory requirements and attention.

Trustmark regularly uses third-party service providers and subcontractors as part of its business. Trustmark also has substantial ongoing business relationships with partners and other third-parties and relies on certain third-parties to provide products and services necessary to maintain day-to-day operations. These types of third-party relationships are subject to increasingly demanding regulatory requirements and attention by regulators, including the FRB, OCC, CFPB and FDIC. Under regulatory guidance, Trustmark is required to apply stringent due diligence, conduct ongoing monitoring and maintain effective control over third-party service providers and subcontractors and other ongoing third-party business relationships. These regulatory expectations may change, and potentially become more rigorous in certain ways, due to an interagency effort to replace existing guidance on the risk management of third-party relationships with new guidance. Trustmark expects that the regulators will hold Trustmark responsible for deficiencies in its oversight and control of its third-party relationships and in the performance of the parties with which Trustmark has these relationships. Trustmark maintains a system of policies and procedures designed to ensure adequate due diligence is performed and to monitor vendor risks. While Trustmark believes these policies and procedures effectively mitigate risk, if the regulators conclude that Trustmark has not exercised adequate oversight and control over third-party service providers and subcontractors or other ongoing third-party business relationships or that such third-parties have not performed appropriately, Trustmark could be subject to enforcement actions, including civil monetary penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation.

There may be risks resulting from the extensive use of models in Trustmark’s business.

Trustmark relies on statistical and quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes as determining the pricing of various products, assessing potential acquisition opportunities, developing presentations made to market analysts and others, creating loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy, calculating regulatory capital levels and estimating the fair value of financial instruments and balance sheet items. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If models for determining interest rate risk and asset-liability management are inadequate, Trustmark may incur increased or unexpected losses upon changes in market interest rates or other market measures. If models for determining ~~probable loan~~expected credit losses are inadequate, the allowance for ~~loan~~credit losses may not be sufficient to support future charge-offs. If models to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what Trustmark could realize upon sale or settlement of such financial instruments. Any such failure in the analytical or forecasting models could have a material adverse effect on Trustmark’s financial condition or results of operations.

Also, information Trustmark provides to its regulators based on poorly designed or implemented models could be inaccurate or misleading. Certain decisions that the regulators make, including those related to capital distributions and dividends to Trustmark’s

shareholders, could be adversely affected due to the regulator’s perception that the quality of Trustmark’s models used to generate the relevant information is insufficient.

~~Trustmark may be adversely affected by the transition from the London Interbank Offered Rate (LIBOR) as a reference rate.~~

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. The Alternative Reference Rates Committee (ARRC), a committee of U.S. financial market participants, has proposed the Secured Overnight Financing Rate (SOFR) as the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. However, there are conceptual and technical differences between LIBOR and SOFR. ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR.

Trustmark has a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change Trustmark’s market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Trustmark has organized an internal initiative to identify operational and contractual best practices, assess its risks, manage the transition, facilitate communication with its customers, and monitor the impacts. Trustmark cannot predict what the ultimate impact of the transition from LIBOR will be; however, failure to adequately manage the transition could have a material adverse effect on Trustmark’s business, financial condition, results of operations and reputation with its customers.

If Trustmark consummates an acquisition, a portion of the purchase price would generally be allocated to goodwill and other identifiable intangible assets. The amount of the purchase price that is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. At December 31, ~~2019,~~2022, goodwill and other identifiable intangible assets were ~~$387.0~~$387.9 million. Under current accounting standards, if Trustmark determines goodwill or intangible assets are impaired, Trustmark would be required to write down the carrying value of these assets. Trustmark’s annual goodwill impairment evaluation performed during the fourth quarter of ~~2019~~2022 indicated no impairment of goodwill for any reporting segment. Management cannot provide assurance, however, that Trustmark will not be required to take an impairment charge in the future. Any impairment charge would have an adverse effect on Trustmark’s shareholders’ equity and financial condition and could cause a decline in Trustmark’s stock price.

Trustmark holds ~~a significant amount of~~ other real estate and may acquire and hold significant additional amounts, which could lead to increased operating expenses and vulnerability to additional declines in real property values.

As business necessitates, Trustmark forecloses on and takes title to real estate serving as collateral for loans. At December 31, ~~2019,~~2022, Trustmark held ~~$29.2~~$2.0 million of other real estate, compared to ~~$34.7~~$4.6 million at December 31, ~~2018.~~2021. The amount of other real estate held by Trustmark may increase in the future as a result of, among other things, business combinations, increased uncertainties in the housing market or increased levels of credit stress in residential real estate loan portfolios. Increased other real estate balances could lead to greater expenses as Trustmark incurs costs to manage, maintain and dispose of real properties as well as to remediate any environmental cleanup costs incurred in connection with any contamination discovered on real property on which Trustmark has foreclosed and to which Trustmark has taken title. As a result, Trustmark’s earnings could be negatively affected by various expenses associated with other real estate owned, including personnel costs, insurance and taxes, completion and repair costs, valuation adjustments and other expenses associated with real property ownership, as well as by the funding costs associated with other real estate assets. The expenses associated with holding a significant amount of other real estate could have a material adverse effect on Trustmark’s financial condition or results of operations.

~~Declines in asset values may result in impairment charges and adversely affect the value of Trustmark’s investments.~~

On a quarterly basis, Trustmark evaluates investments and other assets for impairment indicators. As of December 31, 2019, gross unrealized losses on temporarily impaired securities totaled $7.3 million. Trustmark may be required to record impairment charges if these investments suffer a decline in value that is other-than-temporary. If it is determined that a significant impairment has occurred, Trustmark would be required to charge against earnings the credit-related portion of the other-than-temporary impairment, which could have a material adverse effect on results of operations in the period in which a write-off, if any, occurs.

If Trustmark is required to repurchase a significant number of mortgage loans that it had previously sold, such repurchases could negatively affect earnings.

One of Trustmark’s primary business operations is mortgage banking under which residential mortgage loans are sold in the secondary market under agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans. Trustmark may be required to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the anticipated economic benefits of a loan if it is determined that the loan sold was in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation, loans that do not meet investor guidelines, loans in which the appraisal does not support the value and/or loans obtained through fraud by the borrowers or other third parties. Generally, putback requests may be made until the loan is paid in full. However, mortgage loans delivered to the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) on or after January 1, 2013 are subject to the ~~Lending and Selling~~ Representations and Warranties Framework, ~~updated in May 2014,~~ which provides ~~certain instances in which~~that FNMA and FHLMC will not exercise their remedies, including a putback request, for breaches of certain selling representations and warranties if the mortgage loans satisfy certain criteria, such as payment history ~~and~~or quality control review.

Trustmark faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have greater financial resources. Such competitors primarily include national and regional banks, as well as community banks within the various markets in which Trustmark operates. At this time, major international banks do not materially compete directly with Trustmark in its markets, although they may do so in the future. Trustmark also faces competition from many other types of financial institutions, including savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries. Additionally, fintech developments, such as blockchain and other distributed ledger technologies, have the potential to disrupt the financial industry and change the way banks do business. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.

Changes in retail distribution strategies and consumer behavior may adversely impact Trustmark’s investments in premises, equipment, technology and other assets and may lead to increased expenditures to change its retail distribution channel.

Trustmark has significant investments in bank premises and equipment for its branch network. Advances in technology such as ecommerce, telephone, internet and mobile banking, and in-branch self-service technologies including interactive teller machines (ITMs) and other equipment, as well as an increasing customer preference for these other methods of accessing Trustmark’s products and services, could decrease the value of its branch network, technology, or other retail distribution physical assets and may cause Trustmark to change its retail distribution strategy, close and/or sell certain branches or parcels of land held for development and restructure or reduce its remaining branches and work force. These actions could lead to losses on these assets or could adversely impact the carrying value of any long-lived assets and may lead to increased expenditures to renovate, reconfigure or close a number of Trustmark’s remaining branches or to otherwise reform its retail distribution channel.

~~Potential acquisitions by Trustmark may disrupt Trustmark’s business and dilute shareholder value.~~

Trustmark continuously monitors the market for merger or acquisition opportunities and, depending upon business and other considerations, may elect to pursue one or more such opportunities in the future. Any such merger or acquisition candidate would need to have a similar culture to Trustmark, have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including: potential exposure to unknown or contingent liabilities of the target company, exposure to potential asset quality issues of the target company, difficulty and expense of integrating the operations and personnel of the target company, potential disruption to Trustmark’s business, potential diversion of Trustmark’s Management’s time and attention, the possible loss of key employees and customers of the target company, difficulty in estimating the value of the target company and potential changes in banking or tax laws or regulations that may affect the target company. Acquisitions may involve the payment of a premium over book and market values, and, therefore, some dilution of Trustmark’s tangible book value and net income per share of common stock may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue projections, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on Trustmark’s financial condition or results of operations.

In addition, the acquisition of an insured depository institution that subsequently fails could significantly adversely affect an affiliated insured depository institution. Under cross-guarantee provisions of the FDI Act, the FDIC may recoup losses to the DIF by assessing a claim against insured depository institutions under common control for losses caused by the failure of an affiliated insured depository institution.

~~The soundness of other financial institutions could adversely affect Trustmark.~~

Trustmark may experience disruptions of its operating systems or breaches in its information system security.

Trustmark is dependent upon communications and information systems to conduct business as such systems are used to manage virtually all aspects of Trustmark’s business. Trustmark’s operations rely on the secure processing, storage and transmission of confidential and other information within its computer systems and networks. Trustmark has taken protective measures, which are continuously monitored and modified as warranted; however, Trustmark’s computer systems, software and networks may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond Trustmark’s control. There could be sudden increases in customer transaction volume; electrical, telecommunications or other major physical infrastructure outages; natural disasters; and events arising from local or larger scale political or social matters, including terrorist acts. Further, Trustmark’s operational and security systems and infrastructure may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious codes and cyber-attacks that could affect their information system security. If one or more of these events were to occur, Trustmark’s or its customers’ confidential and other information would be jeopardized, or such an event could cause interruptions or malfunctions in Trustmark’s or its customers’ or counterparties’ operations. Trustmark may be required to expend significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures in its computer systems and networks, and Trustmark may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by Trustmark. Any such losses, which may be difficult to detect, could adversely

affect Trustmark’s financial condition or results of operations. In addition, the occurrence of such a loss could expose Trustmark to reputational risk, the loss of customer business and additional regulatory scrutiny.

Security breaches in Trustmark’s internet and mobile banking activities ((myTrustmark~~myTrustmark~~^SM®) could further expose Trustmark to possible liability and reputational risk. Any compromise in security could deter customers from using Trustmark’s internet and mobile banking services that involve the transmission of confidential information. Trustmark relies on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. However, these precautions may not protect Trustmark’s systems from compromise or breaches of security, which could result in significant legal liability and significant damage to Trustmark’s reputation and business.

Trustmark relies upon certain third-party vendors to provide products and services necessary to maintain day-to-day operations. Accordingly, Trustmark’s operations are exposed to the risk that these vendors might not perform in accordance with applicable contractual arrangements or service level agreements or that the security of the third-party vendors’ computer systems, software and networks may be vulnerable to compromises that could impact information system security. Trustmark maintains a system of policies and procedures designed to monitor vendor risks. While Trustmark believes these policies and procedures effectively mitigate risk, the failure of an external vendor to perform in accordance with applicable contractual arrangements or service level agreements or any compromise in the security of an external vendor’s information systems could be disruptive to Trustmark’s operations, which could have a material adverse effect on its financial condition or results of operations.

Trustmark must utilize new technologies to deliver its products and services, which could require significant resources and expose Trustmark to additional risks, including cyber-security risks.

In order to deliver new products and services and to improve the productivity of existing products and services, the banking industry relies on rapidly evolving technologies. Trustmark continues to invest in technology to facilitate the ability of its customers to engage in financial transactions, and otherwise enhance the customer experience with respect to its products and services. Trustmark’s ability to effectively utilize new technologies to address customer needs and create operating efficiencies could materially affect future prospects. Management cannot provide any assurances that Trustmark will be successful in utilizing such new technologies. Incorporation of new products and services, such as internet and mobile banking services, may require significant resources and expose Trustmark to additional risks, including cyber-security risks.

~~Trustmark’s use of third-party service providers and Trustmark’s other ongoing third-party business relationships are subject to increasing regulatory requirements and attention.~~

Trustmark regularly uses third-party service providers and subcontractors as part of its business. Trustmark also has substantial ongoing business relationships with partners and other third-parties and relies on certain third-parties to provide products and services necessary to maintain day-to-day operations. These types of third-party relationships are subject to increasingly demanding regulatory requirements and attention by regulators, including the FRB, OCC, CFPB and FDIC. Under regulatory guidance, Trustmark is required to apply stringent due diligence, conduct ongoing monitoring and maintain effective control over third-party service providers and subcontractors and other ongoing third-party business relationships. Trustmark expects that the regulators will hold Trustmark responsible for deficiencies in its oversight and control of its third-party relationships and in the performance of the parties with which Trustmark has these relationships. Trustmark maintains a system of policies and procedures designed to ensure adequate due diligence is performed and to monitor vendor risks. While Trustmark believes these policies and procedures effectively mitigate risk, if the regulators conclude that Trustmark has not exercised adequate oversight and control over third-party service providers and subcontractors or other ongoing third-party business relationships or that such third-parties have not performed appropriately, Trustmark could be subject to enforcement actions, including civil monetary penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation.

Trustmark’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures are based in part on assumptions, and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of Trustmark’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on Trustmark’s business, financial condition and results of operations.

The volatility in the stock prices of companies in the financial services industry, such as Trustmark, may make it more difficult for shareholders to resell Trustmark common stock at attractive prices in a timely manner. Trustmark’s stock price can fluctuate significantly in response to a variety of factors, including factors affecting the financial industry as a whole. The factors affecting financial stocks generally and Trustmark’s stock price in particular include:

General market fluctuations, the potential for breakdowns on electronic trading or other platforms for executing securities transactions, industry factors and general economic and political conditions could also cause Trustmark’s stock price to decrease regardless of operating results.

~~Changes in accounting standards may affect how Trustmark reports its financial condition and results of operations.~~

Trustmark’s accounting policies and methods are fundamental to how Trustmark records and reports its financial condition and results of operations. From time to time, the FASB changes the financial accounting and reporting standards that govern the preparation of Trustmark’s financial statements. The most recent economic recession resulted in increased scrutiny of accounting standards by regulators and legislators, particularly as they relate to fair value accounting principles. In addition, ongoing efforts to achieve convergence between U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards may result in changes to GAAP. Any such changes can be difficult to predict and can materially affect how Trustmark records and reports its financial condition or results of operations. For additional details regarding recently adopted and pending accounting pronouncements, see Note 1 – Significant Accounting Policies included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

Trustmark’s success depends substantially on its ability to attract and retain skilled, experienced personnel. Competition for qualified candidates in the activities and markets that Trustmark serves is intense. While Trustmark invests significantly in the training and development of its employees, it is possible that Trustmark may not be able to retain key employees. If Trustmark were unable to retain its most qualified employees, its performance and competitive positioning could be materially adversely affected.

~~Natural disasters, such as hurricanes, could have a significant negative impact on Trustmark’s business.~~

Many of Trustmark’s loans are secured by property or are made to businesses in or near the Gulf Coast regions of Alabama, Florida, Mississippi and Texas, which are often in the path of seasonal hurricanes. Natural disasters, such as hurricanes, could have a significant negative impact on the stability of Trustmark’s deposit base, the ability of borrowers to repay outstanding loans and the value of collateral securing loans, and could cause Trustmark to incur material additional expenses. Although Management has established disaster recovery policies and procedures, the occurrence of a natural disaster, especially if any applicable insurance coverage is not adequate to enable Trustmark’s borrowers to recover from the effects of the event, could have a material adverse effect on Trustmark’s financial condition or results of operations.

Trustmark may be subject to increased claims and litigation, which could result in legal liability and reputational damage.

Trustmark has been named from time to time as a defendant in litigation relating to its businesses and activities. Litigation may include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages.

In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders.

Substantial legal liability against Trustmark, including its subsidiaries, could materially adversely affect Trustmark’s business, financial condition or results of operations, or cause significant harm to its reputation. TNB recently agreed to a settlement relating to litigation involving the Stanford Financial Group. For additional information regarding this settlement, see the section captioned “Legal Proceedings” in Note 16 - Commitments and Contingencies included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

Damage to Trustmark’s reputation could have a significant negative impact on Trustmark’s business.

Trustmark’s ability to attract and retain customers, clients, investors, and highly-skilled management and employees is affected by its reputation. Public perception of the financial services industry declined as a result of the economic downturn and related government response. Trustmark faces increased public and regulatory scrutiny resulting from the financial crisis and economic downturn. Significant harm to Trustmark’s reputation can also arise from other sources, including employee misconduct, actual or perceived

unethical or illegal behavior, litigation or regulatory outcomes, failing to deliver minimum or required standards of service and quality, compliance failures, disclosure of confidential information, significant or numerous failures, interruptions or breaches of its information systems and the activities of its clients, customers and counterparties, including vendors. Actions by the financial services industry generally or by certain members or individuals in the industry may have a significant adverse effect on Trustmark’s reputation. Trustmark could also suffer significant reputational harm if it fails to properly identify and manage potential conflicts of interest. Management of potential conflicts of interests has become increasingly complex as Trustmark expands its business activities through more numerous transactions, obligations and interests with and among its clients. The actual or perceived failure to adequately address conflicts of interest could affect the willingness of clients to deal with Trustmark, which could adversely affect Trustmark’s businesses.

Potential acquisitions by Trustmark may disrupt Trustmark’s business and dilute shareholder value.

Trustmark’s principal offices are housed in its main office building located in downtown Jackson, Mississippi and owned by TNB. Trustmark’s main office building is primarily allocated for bank use with a small portion available for occupancy by tenants on a lease basis, although such incidental leasing activity is not material to Trustmark’s operations. ~~As of~~At December 31, ~~2019,~~2022, Trustmark, through TNB, operated ~~178~~163 full-service branches, 156 limited-service branches and an ~~ATM~~automated teller machine (ATM) network, which included ~~236 automated teller machines (ATMs)~~

150 ATMs and ~~14 interactive teller machines (ITMs)~~108 ITMs at its branches and other locations. In addition, Trustmark operated 1116 offices in various locations providing mortgage banking, wealth management and insurance services. Trustmark leases 3235 of its branch and other office locations with the remainder being owned. Trustmark believes its properties are suitable and adequate to operate its financial services business.

ITEM 3. LEGAL PROCEEDINGS

Information required in this section is set forth under the heading “Legal Proceedings” of Note 16 – Commitments and Contingencies in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

In accordance FASB ASC Subtopic 450-20, “Loss Contingencies,” Trustmark will establish an accrued liability for litigation matters when those matters present loss contingencies that are both probable and reasonably estimable. As a result of the entry into the Settlement relating to the litigation involving the Stanford Financial Group, Trustmark recognized a $100.0 million litigation settlement expense included in noninterest expense during the fourth quarter of 2022, plus an additional $750 thousand in related legal fees. At the present time, Trustmark believes, based on its evaluation and the advice of legal counsel, that a loss in any currently pending legal proceeding other than the settled Stanford litigation is not probable and reasonably estimable. All matters will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. In view of the inherent difficulty of predicting the outcome of legal proceedings, Trustmark cannot predict the eventual outcomes of the currently pending matters or the timing of their ultimate resolution. Management currently believes, however, based upon the advice of legal counsel and Management’s evaluation and after taking into account its current insurance coverage, that the legal proceedings currently pending other than the settled Stanford litigation should not have a material adverse effect on Trustmark’s consolidated financial condition.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Prices and Dividends

Trustmark’s common stock is listed on the Nasdaq Stock Market and is traded under the symbol “TRMK.”

Trustmark paid quarterly cash dividends to shareholders of $0.23 per share, or $0.92 per share annually, in 2022. As a component of return to common shareholders, Trustmark intends to pay cash dividends when corporate financial performance and capital strength allow it to do so. All dividend payments must be approved and declared by the Board of Directors of Trustmark and are required to be in compliance with all applicable laws and regulations.

At January 31, 2023, there were approximately 3,050 registered shareholders of record and approximately 18,774 beneficial account holders of shares in nominee name of Trustmark’s common stock. Other information required by this item can be found in Note 17 - Shareholders’ Equity included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

Stock Repurchase Program

The Board of Directors of Trustmark authorized a stock repurchase program effective April 1, 2019, under which $100.0 million of Trustmark’s outstanding common shares could be acquired through March 31, 2020. Under this authority, Trustmark repurchased approximately 1.5 million shares of its common stock valued at $47.2 million.

On January 28, 2020, the Board of Directors of Trustmark authorized a stock repurchase program, effective April 1, 2020, under which $100.0 million of Trustmark’s outstanding common stock could be acquired through December 31, 2021. On March 9, 2020, Trustmark suspended its share repurchase programs to preserve capital to support customers during the COVID-19 pandemic. Trustmark resumed the repurchase of its shares in January 2021. Under this authority, Trustmark repurchased approximately 1.9 million shares of its outstanding common stock valued at $61.8 million during 2021.

On December 7, 2021, the Board of Directors of Trustmark authorized a stock repurchase program, effective January 1, 2022, under which $100.0 million of Trustmark’s outstanding common stock could be acquired through December 31, 2022. Under this authority, Trustmark repurchased approximately 789 thousand shares of its common stock value at $24.6 million during 2022.

On December 6, 2022, the Board of Directors of Trustmark authorized a new stock repurchase program, effective January 1, 2023, under which $50.0 million of Trustmark's outstanding common stock may be acquired through December 31, 2023. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions. No shares have been repurchased under this authority.

Performance Graph

The following graph compares Trustmark’s annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the Nasdaq market value index and the S&P 500 – Regional Banks index. The S&P 500 – Regional Banks index is an industry index published by S&P Dow Jones Indices, a division of S&P Global, and is comprised of stock in the S&P Total Market Index that are classified in the Global Industry Classification Standard regional banks sub-industry. This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2017, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown.


Company	2017		2018		2019		2020		2021		2022
Trustmark	$	100.00	$	91.78	$	114.48	$	93.98	$	115.00	$	127.27
NASDAQ Composite-Total Return		100.00		97.16		132.81		192.47		235.15		158.65
S&P 500 - Regional Banks		100.00		81.82		110.80		105.77		148.65		110.72

ITEM 6. SELECTED FINANCIAL DATA

The following unaudited consolidated financial data is derived from Trustmark’s audited financial statements as of and for the three years ended December 31, 2022 ($ in thousands, except per share data). The data should be read in conjunction with Part II. Item 7. -

Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. – Financial Statements and Supplementary Data.


Years Ended December 31,	2022			2021			2020
Consolidated Statements of Income
Total interest income	$	541,833		$	442,511		$	468,335
Total interest expense		47,125			24,160			41,798
Net interest income		494,708			418,351			426,537
Provision for credit losses (PCL), LHFI		21,677			(21,499	)		36,113
PCL, off-balance sheet credit exposures (1)		1,215			(2,949	)		8,934
Noninterest income		205,144			221,910			274,593
Noninterest expense (1)		603,213			489,296			466,301
Income before income taxes		73,747			175,413			189,782
Income taxes		1,860			28,048			29,757
Net Income	$	71,887		$	147,365		$	160,025

Total Revenue (2)	$	699,852		$	640,261		$	701,130

Per Share Data
Basic earnings per share	$	1.17		$	2.35		$	2.52
Diluted earnings per share		1.17			2.34			2.51
Cash dividends per share		0.92			0.92			0.92

Performance Ratios
Return on average equity		4.48	%		8.32	%		9.52	%
Return on average tangible equity		6.00	%		10.81	%		12.58	%
Return on average assets		0.41	%		0.86	%		1.05	%
Average equity / average assets		9.18	%		10.38	%		11.05	%
Net interest margin (fully taxable equivalent)		3.17	%		2.76	%		3.19	%
Dividend payout ratio		78.63	%		39.15	%		36.51	%

Credit Quality Ratios (3)
Net charge-offs (recoveries)/average loans		0.01	%		-0.04	%		0.02	%
PCL, LHFI / average loans		0.19	%		-0.21	%		0.36	%
Nonaccrual LHFI / (LHFI + LHFS)		0.53	%		0.60	%		0.61	%
Nonperforming assets / (LHFI + LHFS) plus other real estate		0.55	%		0.64	%		0.73	%
Allowance for credit losses (ACL), LHFI / LHFI		0.99	%		0.97	%		1.19	%

(1)

During 2021, Trustmark reclassified its credit loss expense on off-balance sheet credit exposures from noninterest expense to PCL, off-balance sheet credit exposures. Prior periods have been reclassified accordingly.

(2)

Consistent with Trustmark’s audited financial statements, total revenue is defined as net interest income plus noninterest income.

(3)

Excludes Paycheck Protection Program (PPP) loans.


December 31,	2022			2021			2020
Consolidated Balance Sheets
Total assets	$	18,015,478		$	17,595,636		$	16,551,840
Securities		3,518,596			3,581,414			2,529,887
Total loans (incl. PPP, LHFS and LHFI)		12,339,265			10,556,871			10,881,609
Deposits		14,437,648			15,087,160			14,048,764
Total shareholders' equity		1,492,268			1,741,311			1,741,117

Stock Performance
Market value - close	$	34.91		$	32.46		$	27.31
Book value		24.47			28.25			27.45
Tangible book value		18.11			21.93			21.26

Capital Ratios
Total equity / total assets		8.28	%		9.90	%		10.52	%
Tangible equity / tangible assets		6.27	%		7.86	%		8.34	%
Tangible equity / risk-weighted assets		7.61	%		10.71	%		11.22	%
Tier 1 leverage ratio (1)		8.47	%		8.73	%		9.33	%
Common equity tier 1 risk-based capital ratio (1)		9.74	%		11.29	%		11.62	%
Tier 1 risk-based capital ratio (1)		10.15	%		11.77	%		12.11	%
Total risk-based capital ratio (1)		11.91	%		13.55	%		14.12	%

(1)

Effective 2020, Trustmark elected the five-year phase-in transition period related to adopting FASB ASU 2016-13 for regulatory capital purposes.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following provides a narrative discussion and analysis of Trustmark’s financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and the supplemental financial data included in Part II. Item 8. – Financial Statements and Supplementary Data of this report. Discussion and analysis of Trustmark’s financial condition and results of operations for the years ended December 31, 2021 and 2020 are included in the respective sections within Part II. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of Trustmark’s Annual Report filed on Form 10-K for the year ended December 31, 2021.

Executive Overview

Trustmark has been committed to meeting the banking and financial needs of its customers and communities for over 130 years and remains focuses on providing support, advice and solutions to its customers' unique needs. Trustmark's produced strong financial results during 2022 reflected by significant growth in LHFI of $1.956 billion, or 19.1%, the highest in Trustmark's history, expansion of the net interest margin, consistent performance from its fee businesses and solid credit quality.

On January 13, 2023, TNB entered into a settlement agreement that will, pending court approval, resolve all current and potential future claims relating to litigation involving the Stanford Financial Group that began in 2009. While Trustmark denies any liability or wrongdoing with respect to this matter, it believes the settlement is in the best interest of Trustmark and its shareholders as it eliminates risk, ongoing expense and uncertainty. In the fourth quarter of 2022, Trustmark recognized litigation settlement expense of $100.0 million as well as an additional $750 thousand in legal fees, which are included in noninterest expense for 2022.

Trustmark is committed to managing the franchise for the long term, supporting investments to promote profitable revenue growth, realigning delivery channels to support changing customer preferences as well as reengineering and efficiency opportunities to enhance long-term shareholder value. Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. The Board of Directors of Trustmark declared a quarterly cash dividend of $0.23 per share. The dividend is payable March 15, 2023, to shareholders of record on March 1, 2023.

Financial Highlights

Trustmark reported a net loss of $34.1 million, or basic and diluted earnings per share (EPS) of -$0.56, for the fourth quarter of 2022, compared to a net income of $26.2 million, or basic and diluted EPS of $0.42, in the fourth quarter of 2021. Trustmark’s reported performance during the quarter ended December 31, 2022, produced a return on average tangible equity of -12.14%, a return on average

assets of -0.76%, an average equity to average assets ratio of 8.41% and a dividend payout ratio of -41.07%, compared to a return on average tangible equity of 7.72%, a return on average assets of 0.60%, an average equity to average assets ratio of 10.12% and a dividend payout ratio of 54.76% during the quarter ended December 31, 2021.

The decrease in net income when the fourth quarter of 2022 is compared to the fourth quarter of 2021 was principally due to the litigation settlement expense recorded during the fourth quarter of 2022 related to the Stanford Financial Group litigation. Excluding the litigation settlement expense, net income increased $15.3 million, or 58.3%, when the fourth quarter of 2022 is compared to the fourth quarter of 2021, principally due to an increase in revenue partially offset by an increase in noninterest expense, excluding the litigation settlement expense. Revenue, which is defined as net interest income plus noninterest income, totaled $191.8 million for the quarter ended December 31, 2022 compared to $149.1 million for the quarter ended December 31, 2021, an increase of $42.7 million, or 28.6%. The increase in total revenue for the fourth quarter of 2022 compared to the same time period in 2021 was principally due to an increase in interest and fees on LHFS and LHFI partially offset by an increase in interest on deposits and a decline in mortgage banking, net.

Net interest income for the fourth quarter of 2022 totaled $146.6 million, an increase of $48.3 million, or 49.1%, when compared to the fourth quarter of 2021, principally due to an increase in interest and fees on LHFS and LHFI partially offset by increases in all categories of interest expense. Noninterest income for the fourth quarter of 2022 totaled $45.2 million, a decrease of $5.6 million, or 11.0%, when compared to the fourth quarter of 2021, principally due to a decrease in mortgage banking, net partially offset by increases in service charges on deposit accounts and other income, net. Mortgage banking, net declined $8.2 million, or 70.6%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to decreases in gain on sales of loans, net and the net hedge ineffectiveness partially offset by a decline in the MSR run-off. Service charges on deposit accounts increased $1.8 million, or 19.2%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in non-sufficient funds (NSF) and overdraft fees on consumer interest checking accounts and commercial demand deposit accounts (DDAs) as well as an increase in service charges on consumer interest checking accounts, partially offset by a decline in NSF and overdraft fees on consumer DDAs. Other income, net increased $1.3 million when the fourth quarter of 2022 is compared to the fourth quarter of 2021, principally due to an increase in cash management service fees and a decline in the amortization of tax credit partnerships.

Noninterest expense for the fourth quarter of 2022 totaled $231.2 million, an increase of $111.8 million, or 93.5%, when compared to the fourth quarter of 2021, principally due to the litigation settlement expense recorded during the fourth quarter of 2022 related to the Stanford Financial Group litigation. Excluding the litigation settlement expense, noninterest expense increased $11.0 million, or 9.2%, when the fourth quarter of 2022 is compared to the fourth quarter of 2021, principally due to increases in salaries and employee benefits, services and fees, other expense and net occupancy-premises. Salaries and employee benefits increased $5.2 million, or 7.6%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in salary expense as a result of general merit increases and the addition of employees in the Georgia LPO, severance expense, management performance incentives expense and commissions expense as a result of improvements in insurance business, partially offset by a decline in commission expense related to mortgage originations. Services and fees increased $3.9 million, or 16.8%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in legal fees and business processing outsourcing expenses. Other expense increased $1.2 million, or 7.9%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in loan expenses, sponsorships and contributions and FDIC assessment expense, partially offset by declines in other miscellaneous expenses. Net occupancy-premises expense increased $1.1 million, or 15.9%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in rental expense primarily due to lease termination expense, depreciation of building improvements and other office occupancy expense.

Trustmark’s PCL, LHFI for the three months ended December 31, 2022 totaled $6.9 million compared to a negative $4.5 million for the three months ended December 31, 2021, an increase of $11.4 million. The PCL, LHFI for the fourth quarter of 2022 primarily reflected increases in reserves as a result of loan growth, the weakening of the macroeconomic forecasts and the nature and volume of the portfolio, partially offset by reserves released as a result of updates and adjustments to the qualitative factors and a decline in specific reserves for individually analyzed LHFI. The PCL, off-balance sheet credit exposures totaled $5.2 million for the three months ended December 31, 2022 compared to $2.9 million for the three months ended December 31, 2021, an increase of $2.3 million, or 77.4%. The PCL, off-balance sheet credit exposures for the fourth quarter of 2022 primarily reflected changes in the total reserve rate and an increase in unfunded balances. Please see the section captioned “Provision for Credit Losses,” for additional information regarding the PCL on LHFI and off-balance sheet credit exposures.

For the year ended December 31, 2022, Trustmark reported net income of $71.9 million, or basic and diluted EPS of $1.17, compared to $147.4 million, or basic and diluted EPS of $2.35 and $2.34, respectively, for the year ended December 31, 2021 and $160.0 million, or basic and diluted EPS of $2.52 and $2.51, respectively, for the year ended December 31, 2020. Trustmark’s reported performance for the year ended December 31, 2022, produced a return on average tangible equity of 6.00%, a return on average assets of 0.41% and a dividend payout ratio of 78.63%, compared to a return on average tangible equity of 10.81%, a return on average assets of 0.86% and a dividend payout ratio of 39.15% for the year ended December 31, 2021 and a return on average tangible equity of 12.58%, a return on

average assets of 1.05% and a dividend payout ratio of 36.51% for the year ended December 31, 2020. Trustmark’s average equity to average assets ratio was 9.18%, 10.38% and 11.05% for the years ended December 31, 2022, 2021 and 2020, respectively.

Revenue totaled $699.9 million for the year ended December 31, 2022, compared to $640.3 million and $701.1 million for the years ended December 31, 2021 and 2020, respectively, an increase of $59.6 million, or 9.3%, and a decrease of $60.9 million, or 8.7%, respectively. The increase in total revenue for 2022 compared to 2021 was principally due to increases in interest and fees on LHFS and LHFI and interest on securities partially offset by declines in mortgage banking, net and interest and fees on PPP loans as well as an increase in total interest expense.

Net interest income for the year ended December 31, 2022 totaled $494.7 million, an increase of $76.4 million, or 18.3%, when compared to the year ended December 31, 2021, principally due to increases in interest and fees on LHFS and LHFI and interest on securities, partially offset by a decline in interest and fees on PPP loans and an increase in interest expense on deposits. Interest and fees on LHFS and LHFI increased $109.2 million, or 30.0%, and interest on securities increased $20.8 million, or 53.0%, when 2022 is compared to 2021 as a result of increases in average balances and higher interest rates. Interest and fees on PPP loans decreased $36.1 million, or 98.3%, when 2022 is compared to 2021 principally due to the accelerated recognition of the unamortized loan fees on the PPP loans sold during the second quarter of 2021 as well as PPP loans that were forgiven by the Small Business Administration (SBA). Interest expense on deposits increased $12.1 million, or 71.5%, when 2022 is compared to 2021 principally due to increases in interest rates on interest checking and money market deposit accounts as well as declines in average balances and interest rates on certificates of deposits. Interest expense on federal funds purchased and securities sold under repurchase agreements increased $5.9 million when 2022 is compared to 2021, principally due to an increase in upstream federal funds purchased as well as the FRB’s increase in the target range for the federal funds rate. Other interest expense increased $4.9 million, or 70.8%, when 2022 is compared to 2021, principally due to an increase in the amount of short-term FHLB advances obtained from the FHLB of Dallas.

Noninterest income totaled $205.1 million for 2022, a decrease of $16.8 million, or 7.6%, when compared to 2021, principally due to a decrease in mortgage banking, net partially offset by increases in service charges on deposit accounts, insurance commissions and other income, net. Mortgage banking, net decreased $35.4 million, or 55.6%, when 2022 is compared to 2021, principally due to decreases in gain on sales of loans, net and the net hedge ineffectiveness partially offset by a decline in the MSR run-off. Service charges on deposit accounts increased $8.9 million, or 26.8%, when 2022 is compared to 2021, principally due to increases in NSF and overdraft fees on consumer interest checking accounts and commercial DDAs as well as service charges on consumer interest checking accounts. Insurance commissions increased $5.2 million, or 10.7%, when 2022 is compared to 2021 principally due to increases in property and casualty commissions, other commission income and group health commissions. Other income, net increased $3.3 million, or 50.2%, when 2022 is compared to 2021, principally due to increases in cash management service fees and other miscellaneous income as well as a decline in the amortization of tax credit partnerships.

Noninterest expense totaled $603.2 million for 2022, an increase of $113.9 million, or 23.3%, when compared to 2021, principally due to the $100.8 million litigation settlement expense recorded during the fourth quarter of 2022. Excluding the litigation settlement expense, noninterest expense increased $13.2 million, or 2.7%, when 2022 is compared to 2021, principally due to increases in services and fees, salaries and employee benefits and net occupancy-premises, partially offset by a decline in other expense. Services and fees increased $12.1 million, or 13.5%, when 2022 is compared to 2021, primarily due to increases in professional services and fees, business processing outsourcing expenses and software licenses. Salaries and employee benefits expense increased $3.3 million, or 1.2%, when 2022 is compared to 2021 principally due to increases in salaries expense primarily related to general merit increases and the addition of the Georgia LPO associates, commissions expense primarily related to improvements in insurance business volumes, management performance incentives, severance expense and other salaries expense, partially offset by non-routine expenses related to the voluntary early retirement program completed during the third quarter of 2021 and a decline in commission expense related to mortgage production. Trustmark completed a voluntary early retirement program during 2021 and incurred $5.6 million of non-routine salaries and employee benefits expense related to this program. Excluding these non-routine expenses, salaries and employee benefits increased $8.9 million, or 3.2%, when 2022 is compared to 2021. Net occupancy-premises increased $2.2 million, or 8.2%, when 2022 is compared to 2021, principally due to increases in landscaping expense, building rental expense primarily due to lease termination expense and depreciation of building improvements. Other expense decreased $4.5 million, or 7.0%, when 2022 is compared to 2021 principally due to the $5.0 million regulatory settlement expense incurred during the third quarter of 2021 as well as a decline in other real estate expense, net, partially offset by increases FDIC assessment expense, travel and entertainment expenses and loan expenses. Excluding the non-routine regulatory settlement expense, other expense increased $471 thousand, or 0.8%, when 2022 is compared to 2021.

Trustmark’s PCL, LHFI for 2022 totaled $21.7 million compared to a negative $21.5 million for 2021, an increase of $43.2 million. The increase in the PCL, LHFI during 2022 was principally due to the weakening of the macroeconomic forecasts, loan growth and specific reserves for individually analyzed LHFI. The PCL, off-balance sheet credit exposures totaled $1.2 million for 2022 compared to a negative $2.9 million for 2021, an increase of $4.2 million. The increase in the PCL, off-balance sheet credit exposures was

principally due to changes in the total reserve rate. Please see the section captioned “Provision for Credit Losses” for additional information regarding the PCL on LHFI and off-balance sheet credit exposures.

At December 31, 2022, nonperforming assets totaled $68.0 million, an increase of $703 thousand, or 1.0%, compared to December 31, 2021 reflecting an increase in nonaccrual LHFI largely offset by a decline other real estate. Total nonaccrual LHFI were $66.0 million at December 31, 2022, an increase of $3.3 million, or 5.2%, relative to December 31, 2021, principally due to LHFI placed on nonaccrual status partially offset by reductions, pay-offs and charge-offs of nonaccrual LHFI in the Mississippi, Alabama, Texas and Tennessee market regions. The percentage of loans, excluding PPP loans, that are 30 days or more past due and nonaccrual LHFI decreased in 2022 to 1.33% compared to 1.51% in 2021. Other real estate totaled $2.0 million at December 31, 2022, a decline of $2.6 million, or 56.4%, when compared to December 31, 2021, principally due to properties sold in Trustmark’s Mississippi market region partially offset by properties foreclosed in the Mississippi market region.

LHFI totaled $12.204 billion at December 31, 2022, an increase of $1.956 billion, or 19.1%, compared to December 31, 2021. The increase in LHFI during 2022 was primarily due to net growth in all classes of LHFI with the exception of other commercial LHFI. For additional information regarding changes in LHFI and comparative balances by loan category, see the section captioned “LHFI.”

Management has continued its practice of maintaining excess funding capacity to provide Trustmark with adequate liquidity for its ongoing operations. In this regard, Trustmark benefits from its strong deposit base, its highly liquid investment portfolio and its access to funding from a variety of external funding sources such as upstream federal funds lines, FHLB advances and, on a limited basis, brokered deposits. See the section captioned “Liquidity” for further discussion of the components of Trustmark’s excess funding capacity.

Total deposits were $14.438 billion at December 31, 2022, a decrease of $649.5 million, or 4.3%, compared to December 31, 2021. During 2022, noninterest-bearing deposits decreased $677.3 million, or 14.2%, reflecting declines in all categories of noninterest-bearing deposit accounts. Interest-bearing deposits increased $27.8 million, or 0.3%, during 2022, primarily due to growth in consumer and commercial interest checking accounts, consumer savings accounts and all categories of certificates of deposits, partially offset by declines in all categories of Money Market Deposit Accounts (MMDA) as well as public interest checking accounts.

Federal funds purchased and repurchase agreements totaled $449.3 million at December 31, 2022 compared to $238.6 million at December 31, 2021, an increase of $210.8 million, or 88.3%. Trustmark had $383.0 million of upstream federal funds purchased at December 31, 2022, compared to none at December 31, 2021. Other borrowings totaled $1.051 billion at December 31, 2022, an increase of $959.9 million when compared with $91.0 million at December 31, 2021, primarily due to an increase in outstanding short-term FHLB advances with the FHLB of Dallas. The increases in the upstream federal funds purchased and FHLB advances during 2022 were the result of changes in funding needs to support the strong loan growth.

Critical Accounting Policies and Accounting Estimates

Trustmark’s consolidated financial statements are prepared in accordance with GAAP and follow general practices within the financial services industry. Application of these accounting principles requires Management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on historical experience, current information and other factors deemed relevant as of the date of the consolidated financial statements; accordingly, as this information changes, actual financial results could differ from those estimates.

Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. An accounting estimate is considered critical if the accounting estimate requires Management to make assumptions about matters with a significant level of uncertainty and if the accounting estimate, or changes to the accounting estimate that are reasonably likely to occur from period to period, have had or are reasonable likely to have a material impact to the consolidated financial statements.

For additional information regarding the accounting policies discussed below, please see Note 1 – Significant Accounting Policies set forth in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Allowance for Credit Losses (ACL)

LHFI

The ACL for LHFI is a valuation account, calculated in accordance with FASB ASC Topic 326, that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL for LHFI represents Management’s best estimate of current expected credit losses on Trustmark’s existing LHFI portfolio considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. The ACL for LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

The credit loss estimation process involves procedures to appropriately consider the unique characteristics of Trustmark’s LHFI portfolio segments. These segments are further disaggregated into loan classes, the level at which credit risk is estimated. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the ACL is complex and requires judgement by Management about the effect of matters that are inherently uncertain. While Management utilizes its best judgment and information available, the ultimate adequacy of Trustmark’s ACL is dependent upon a variety of factors beyond its controls, including the performance of the portfolios, the economy, changes in interest rates and the view of regulatory authorities toward classification of assets. In future periods, evaluations of the overall LHFI portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and PCL, LHFI in those future periods. Given the nature of many of the factors, forecasts and assumptions in the ACL methodology, it is not possible to provide meaningful estimates of the impact of any such potential change.

For a complete description of Trustmark’s ACL methodology for the LHFI portfolio, please see Note 4 – LHFI and Allowance for Credit Losses, LHFI included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which are not unconditionally cancellable. The ACL on off-balance sheet credit exposures is a liability account calculated in accordance with FASB ASC Topic 326 and presented in the accompanying consolidated balance sheets. Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures.

Evaluations of the unfunded commitments are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the ACL is complex and requires judgement by Management about the effect of matters that are inherently uncertain. While Management utilizes its best judgment and information available, the ultimate adequacy of Trustmark’s ACL is dependent upon a variety of factors beyond its control, including the performance of the portfolios, the economy, changes in interest rates and the view of regulatory authorities toward classification of assets. In future periods, evaluations of off-balance sheet credit exposures, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and PCL, off-balance sheet credit exposures in those future periods. Given the nature of many of the factors, forecasts and assumptions in the ACL methodology, it is not possible to provide meaningful estimates of the impact of any such potential change.

For a complete description of Trustmark’s ACL methodology for the off-balance sheet credit exposures, please see the section captioned “Lending Related” in Note 16 – Commitments and Contingencies included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Mortgage Servicing Rights (MSR)

Trustmark recognizes as assets the rights to service mortgage loans based on the estimated fair value of the MSR when loans are sold and the associated servicing rights are retained. Trustmark has elected to account for the MSR at fair value.

The fair value of the MSR is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, escrow account earnings and contractual servicing fee income and costs. Management reviews all significant assumptions at least quarterly. Mortgage loan prepayment speeds, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change.

By way of example, an increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the MSR, while a decrease in either assumption will result in an increase in the fair value of the MSR. In recent years, there have been significant market-driven fluctuations in loan prepayment speeds and discount rates. These fluctuations can be rapid and may continue to be significant. Therefore, estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment.

At December 31, 2022, the MSR fair value was $129.7 million. The impact on the MSR fair value of either a 10% adverse change in prepayment speeds or a 100 basis point increase in discount rates at December 31, 2022, would be a decline in fair value of approximately $4.5 million and $5.4 million, respectively. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts. See the section captioned “MSR” in Note 6 – Mortgage Banking included in Part II. Item 8. – Financial Statements and Supplementary Data of this report for additional information regarding the valuation of the MSR.

Recent Legislative and Regulatory Developments

For information regarding legislation and regulation applicable to Trustmark, see the section captioned “Supervision and Regulation” included in Part I. Item 1. – Business of this report.

Non-GAAP Financial Measures

In addition to capital ratios defined by GAAP and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy. Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets. Trustmark’s Common Equity Tier 1 capital includes common stock, capital surplus and retained earnings, and is reduced by goodwill and other intangible assets, net of associated net deferred tax liabilities as well as disallowed deferred tax assets and threshold deductions as applicable.

Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations. In Management’s experience, many stock analysts use tangible common equity measures in conjunction with more traditional bank capital ratios to compare capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios. Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculations may not be comparable with other organizations. Also, there may be limits in the usefulness of these measures to investors. As a result, Trustmark encourages readers to consider its audited consolidated financial statements and the notes related thereto in their entirety and not to rely on any single financial measure.

The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP for the periods presented ($ in thousands, except per share data):


		Years Ended December 31,
TANGIBLE EQUITY		2022			2021			2020
AVERAGE BALANCES
Total shareholders' equity		$	1,604,854		$	1,770,151		$	1,681,587
Less: Goodwill			(384,237	)		(384,463	)		(383,582	)
Identifiable intangible assets			(4,312	)		(6,205	)		(8,060	)
Total average tangible equity		$	1,216,305		$	1,379,483		$	1,289,945
PERIOD END BALANCES
Total shareholders' equity		$	1,492,268		$	1,741,311		$	1,741,117
Less: Goodwill			(384,237	)		(384,237	)		(385,270	)
Identifiable intangible assets			(3,640	)		(5,074	)		(7,390	)
Total tangible equity	(a)	$	1,104,391		$	1,352,000		$	1,348,457

TANGIBLE ASSETS
Total assets		$	18,015,478		$	17,595,636		$	16,551,840
Less: Goodwill			(384,237	)		(384,237	)		(385,270	)
Identifiable intangible assets			(3,640	)		(5,074	)		(7,390	)
Total tangible assets	(b)	$	17,627,601		$	17,206,325		$	16,159,180
Risk-weighted assets	(c)	$	14,521,078		$	12,623,630		$	12,017,378

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income		$	71,887		$	147,365		$	160,025
Plus: Intangible amortization net of tax			1,076			1,738			2,289
Net income adjusted for intangible amortization		$	72,963		$	149,103		$	162,314
Period end common shares outstanding	(d)		60,977,686			61,648,679			63,424,526

TANGIBLE EQUITY MEASUREMENTS
Return on average tangible equity (1)			6.00	%		10.81	%		12.58	%
Tangible equity/tangible assets	(a)/(b)		6.27	%		7.86	%		8.34	%
Tangible equity/risk-weighted assets	(a)/(c)		7.61	%		10.71	%		11.22	%
Tangible book value	(a)/(d)*1,000	$	18.11		$	21.93		$	21.26

COMMON EQUITY TIER 1 CAPITAL (CET1) - BASEL III
Total shareholders' equity		$	1,492,268		$	1,741,311		$	1,741,117
CECL transition adjustment (2)			19,500			26,000			31,199
AOCI-related adjustments			275,403			32,560			1,051
CET1 adjustments and deductions:
Goodwill net of associated deferred tax liabilities (DTLs)			(370,241	)		(370,252	)		(371,333	)
Other adjustments and deductions for CET1 (3)			(3,258	)		(4,392	)		(6,190	)
CET1 capital	(e)		1,413,672			1,425,227			1,395,844
Additional tier 1 capital instruments plus related surplus			60,000			60,000			60,000
Tier 1 capital		$	1,473,672		$	1,485,227		$	1,455,844
Common equity tier 1 risk-based capital ratio	(e)/(c)		9.74	%		11.29	%		11.62	%

(1)

Calculated using net income adjusted for intangible amortization divided by total average tangible equity.

(2)

Trustmark elected the five-year phase-in transition period related to adopting FASB ASU 2016-13 for regulatory capital purposes.

(3)

Includes other intangible assets, net of DTLs, disallowed deferred tax assets and threshold deductions, as applicable.

Significant Non-routine Transactions

Trustmark discloses certain non-GAAP financial measures, including net income adjusted for significant non-routine transactions, because Management uses these measures for business planning purposes, including to manage Trustmark’s business against internal projected results of operations and to measure Trustmark’s performance. Trustmark views net income adjusted for significant non-routine transactions as a measure of its core operating business, which excludes the impact of the items detailed below, as these items are generally not operational in nature. This non-GAAP measure also provides another basis for comparing period-to-period results as presented in the accompanying selected financial data table and the audited consolidated financial statements by excluding potential differences caused by non-operational and unusual or non-recurring items. Readers are cautioned that these adjustments are not permitted under GAAP. Trustmark encourages readers to consider its audited consolidated financial statements and the notes related thereto, included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, in their entirety, and not to rely on any single financial measure.

The following table presents adjustments to net income and select financial ratios as reported in accordance with GAAP resulting from significant non-routine items occurring during the periods presented ($ in thousands, except per share data):


	Years Ended December 31,
	2022						2021						2020
	Amount			Diluted EPS			Amount			Diluted EPS			Amount			Diluted EPS
Net Income (GAAP)	$	71,887		$	1.17		$	147,365		$	2.34		$	160,025		$	2.51

Significant non-routine transactions:
Litigation settlement expense		75,563			1.23			—			—			—			—
Voluntary early retirement program		—			—			4,275			0.07			3,281			0.05
Regulatory settlement charge (not tax deductible)		—			—			5,000			0.08			—			—
Net Income adjusted for significant non-routine transactions (Non-GAAP)	$	147,450		$	2.40		$	156,640		$	2.49		$	163,306		$	2.56

	Reported (GAAP)			Adjusted (Non-GAAP)			Reported (GAAP)			Adjusted (Non-GAAP)			Reported (GAAP)			Adjusted (Non-GAAP)
Return on average equity		4.48	%		9.13	%		8.32	%		8.83	%		9.52	%		9.69	%
Return on average tangible equity		6.00	%		12.12	%		10.81	%		11.45	%		12.58	%		12.81	%
Return on average assets		0.41	%		0.84	%		0.86	%		0.92	%		1.05	%		1.07	%

Litigation Settlement Expense

On January 13, 2023, TNB entered into a settlement agreement relating to the litigation involving the Stanford Financial Group. Information regarding this settlement and related litigation is set forth under the heading “Legal Proceedings” of Note 16 – Commitments and Contingencies in Part II. Item 8. – Financial Statements and Supplementary Data of this report. As a result of this settlement, Trustmark recognized a one-time charge of $100.0 million of litigation settlement expense as well as an additional $750 thousand of legal fees during the fourth quarter of 2022.

Voluntary Early Retirement Program

During the third quarter of 2021, Trustmark completed a voluntary early retirement program and incurred one-time charges of $5.7 million ($5.6 million of non-routine salaries and employee benefits expense and $89 thousand of non-routine other miscellaneous expense) related to this program.

During the first quarter of 2020, Trustmark completed a voluntary early retirement program and incurred one-time charges of $4.4 million ($4.3 million of non-routine salaries and employee benefits expense and $102 thousand of non-routine other miscellaneous expense) related to this program.

Regulatory Settlement Charge

During the third quarter of 2021, Trustmark finalized a settlement with regulatory authorities to resolve fair lending allegations in the Memphis metropolitan statistical area (MSA). Trustmark incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents in majority-Black and Hispanic neighborhoods in the Memphis MSA.

Results of Operations

Net Interest Income

Net interest income is the principal component of Trustmark’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The net interest margin is computed by dividing fully taxable equivalent (FTE) net interest income by average interest-earning assets and measures how effectively Trustmark utilizes its interest-earning assets in relationship to the interest cost of funding them. The accompanying Yield/Rate Analysis Table shows the average balances for all assets and liabilities of Trustmark and the interest income or expense associated with earning assets and interest-bearing liabilities. The yields and rates have been computed based upon interest income and expense adjusted to a FTE basis using the federal statutory corporate tax rate in effect for each of the periods shown. Loans on nonaccrual have been included in the average loan balances, and interest collected prior to these loans having been placed on

nonaccrual has been included in interest income. Loan fees included in interest associated with the average LHFS and LHFI balances are immaterial.

Net interest income-FTE for the year ended December 31, 2022 increased $77.0 million, or 17.9%, when compared with the year ended December 31, 2021. The increase in net interest income-FTE when 2022 is compared to 2021 was principally due to increases in interest and fees on LHFS and LHFI-FTE and interest on securities-taxable, partially offset by a decline in interest and fees on PPP loans and an increase in total interest expense. The net interest margin-FTE for 2022 increased 41 basis points to 3.17% when compared to 2021. The net interest margin-FTE excluding PPP loans and the balance held at the Federal Reserve Bank of Atlanta (FRBA), which equals the reported net interest income-FTE excluding interest and fees on PPP loans and interest on the FRBA balance, as a percentage of average earning assets excluding average PPP loans and the average FRBA balance, was 3.30% for 2022, an increase of 39 basis points when compared to 2.91% for 2021. The increase in the net interest margin-FTE excluding PPP loans and the balance held at the FRBA for 2022 was principally due to increases in the yields on the LHFS and LHFI and securities portfolios, partially offset by higher costs of interest-bearing liabilities reflecting the higher interest rate environment.

At December 31, 2022, Trustmark had no PPP loans outstanding compared to $33.3 million, net of deferred fees and costs of $500 thousand, at December 31, 2021. Processing fees earned by TNB as the originating lender were amortized over the life of the loans. Payments on PPP loans were deferred until the date the SBA remitted the borrower’s loan forgiveness amount to the lender (or, if the borrower did not apply for loan forgiveness, ten months after the end of the borrower’s loan forgiveness covered period). PPP loans totaling $33.5 million were forgiven by the SBA during 2022. During the second quarter of 2021, Trustmark sold $354.2 million of its outstanding PPP loans, resulting in accelerated recognition of $18.6 million of unamortized PPP loan origination fees, net of cost, which was included in net interest income-FTE for 2021. In addition, PPP loans totaling $605.5 million were forgiven by the SBA during 2021. Average PPP loans for 2022 totaled $14.9 million, a decrease of $335.8 million, or 95.8%, when compared to 2021. Interest and fees on PPP loans decreased $36.1 million, or 98.3%, when 2022 is compared to 2021. The yield on PPP loans decreased to 4.30% for 2022 compared to 10.47% for 2021.

The average FRBA balance, included in other earning assets, for 2022 totaled $846.9 million, a decrease of $929.6 million, or 52.3%, when compared to 2021. Interest earned on the FRBA balance increased $4.6 million when 2022 is compared to 2021. The yield on the FRBA balance was 0.82% and 0.13% for 2022 and 2021, respectively, an increase of 69 basis points reflecting the FRBA's increase in the interest rate that it pays on reserves during 2022.

Average interest-earning assets for 2022 were $16.014 billion compared to $15.569 billion for 2021, an increase of $445.1 million, or 2.9%. The increase in average earning assets during 2022 was primarily due to increases in average securities of $838.5 million, or 27.8%, and average loans (LHFS and LHFI) of $858.4 million, or 8.3%, which were partially offset by decreases in average other earning assets of $917.7 million, or 50.3%, and average PPP loans of $335.8 million, or 95.8%. The increase in average securities when 2022 is compared to 2021 was principally due to purchases of securities partially offset by calls, maturities and pay-downs of the underlying loans of government-sponsored enterprise (GSE) guaranteed securities. The increase in average loans (LHFS and LHFI) was primarily attributable to an increase in the average balance of the LHFI portfolio of $1.058 billion, or 10.6%, partially offset by a decrease in the average balance of the LHFS portfolio of $163.0 million, or 45.7%, when balances at December 31, 2022 are compared to balances at December 31, 2021. See the sections captioned "LHFS" and "LHFI" for additional information regarding changes in the LHFS and LHFI portfolios. The decrease in average other earning assets when 2022 is compared to 2021 was primarily due to a decrease in reserves held at the FRBA. The decrease in average PPP loans when 2022 is compared to 2021 was principally due to the loans forgiven by the SBA.

Interest income-FTE totaled $554.2 million for 2022, an increase of $100.0 million, or 22.0%, while the yield on total earning assets increased 54 basis points to 3.46% when compared to 2021. The increase in interest income-FTE in 2022 primarily reflects increases in interest and fees on LHFS and LHFI-FTE, interest on securities-taxable and other interest income, partially offset by the decrease in interest and fees on PPP loans. During 2022, interest and fees on LHFS and LHFI-FTE increased $109.9 million, or 29.3%, when compared to 2021, while the yield on loans (LHFS and LHFI) increased 70 basis points to 4.32% as a result of the increase in the average balance of the LHFI portfolio as well as higher interest rates. During 2022, interest on securities-taxable increased $21.0 million, or 54.3%, while the yield on securities-taxable increased 26 basis points to 1.55% when compared to 2021, primarily due to securities purchased during 2022 as well as higher interest rates. During 2022, other interest income increased $5.3 million when compared to 2021, while the yield on other earning assets increased 74 basis points to 0.89%, principally due to FRBA's increase in the interest rate paid on reserves during 2022. See the discussion above regarding changes in interest income and yields on PPP loans and balances held at the FRBA.

Average interest-bearing liabilities for 2022 totaled $10.987 billion compared to $10.490 billion for 2021, an increase of $497.0 million, or 4.7%. The increase in average interest-bearing liabilities was primarily the result of increases in average interest-bearing deposits and average federal funds purchased and securities sold under repurchase agreements. Average interest-bearing deposits for 2022 increased $313.1 million, or 3.1%, when compared to 2021, reflecting growth in average interest-bearing demand deposits partially offset by declines in average savings and time deposits. Average federal funds purchased and securities sold under repurchase agreements increased $110.5 million, or 64.0%, when 2022 is compared to 2021, principally due to an increase in upstream federal funds purchased to fund loan growth.

Interest expense for 2022 totaled $47.1 million, an increase of $23.0 million, or 95.1%, when compared with 2021, while the rate on total interest-bearing liabilities increased 20 basis points to 0.43%. The increase in total interest expense for 2022 reflected increases in interest on deposits, interest on federal funds purchased and securities sold under repurchase agreements and other interest expense. Interest on deposits increased $12.1 million, or 71.5%, while the rate on interest-bearing deposits increased 11 basis points to 0.28% when 2022 is compared to 2021, primarily due to increases in interest on all categories of interest checking accounts and MMDAs, reflecting rising interest rates, partially offset by a decline in interest on time deposits, reflecting declines average balances. Interest expense on federal funds purchased and securities sold under repurchase agreements increased $5.9 million, while the rate on federal funds purchased and securities sold under repurchase agreements increased to 2.16% compared to 0.13%, when 2022 is compared to 2021, principally due to an increase in upstream federal funds purchased as well as the FRB’s increase in the target range for the federal funds rate. Other interest expense increased $4.9 million, or 70.8%, while the rate on other borrowings increased 86 basis points to 3.11%, when 2022 is compared to 2021, principally due to an increase in the amount of short-term FHLB advances obtained from the FHLB of Dallas.

The following table provides the tax equivalent basis yield or rate for each component of the tax equivalent net interest margin for the periods presented ($ in thousands):


	Years Ended December 31,
	2022								2021								2020
	Average					Yield/			Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased under reverse repurchase agreements	$	1,753		$	74		4.22	%	$	79		$	—		—		$	221		$	1		0.45	%
Securities available for sale:
Taxable		2,932,054			38,799		1.32	%		2,573,533			30,453		1.18	%		1,776,555			35,375		1.99	%
Nontaxable		4,997			195		3.90	%		5,166			199		3.85	%		10,737			384		3.58	%
Securities held to maturity:
Taxable		911,010			20,918		2.30	%		423,763			8,245		1.95	%		626,983			12,875		2.05	%
Nontaxable		5,623			227		4.04	%		12,765			495		3.88	%		25,366			982		3.87	%
PPP loans		14,868			639		4.30	%		350,668			36,726		10.47	%		646,680			26,643		4.12	%
Loans (LHFS and LHFI)		11,236,388			485,246		4.32	%		10,377,941			375,330		3.62	%		9,996,192			402,539		4.03	%
Other earning assets		907,414			8,080		0.89	%		1,825,134			2,767		0.15	%		657,096			1,559		0.24	%
Total interest-earning assets		16,014,107			554,178		3.46	%		15,569,049			454,215		2.92	%		13,739,830			480,358		3.50	%
Other assets		1,567,921								1,599,114								1,592,393
Allowance for loan losses		(104,138	)							(110,170	)							(108,567	)
Total Assets	$	17,477,890							$	17,057,993							$	15,223,656

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	4,585,955			16,409		0.36	%	$	4,096,746			4,906		0.12	%	$	3,584,249			9,985		0.28	%
Savings deposits		4,579,742			9,654		0.21	%		4,622,167			7,912		0.17	%		4,149,860			13,481		0.32	%
Time deposits		1,153,983			3,006		0.26	%		1,287,663			4,127		0.32	%		1,534,673			14,021		0.91	%
Federal funds purchased and securities sold under repurchase agreements		283,328			6,127		2.16	%		172,782			232		0.13	%		151,805			755		0.50	%
Other borrowings		198,672			4,963		2.50	%		125,554			1,037		0.83	%		133,602			1,389		1.04	%
Subordinated notes		123,144			4,751		3.86	%		122,933			4,752		3.87	%		10,766			474		4.40	%
Junior subordinated debt securities		61,856			2,215		3.58	%		61,856			1,194		1.93	%		61,856			1,693		2.74	%
Total interest-bearing liabilities		10,986,680			47,125		0.43	%		10,489,701			24,160		0.23	%		9,626,811			41,798		0.43	%
Noninterest-bearing demand deposits		4,452,046								4,531,642								3,646,860
Other liabilities		434,310								266,499								268,398
Shareholders' equity		1,604,854								1,770,151								1,681,587
Total Liabilities and Shareholders' Equity	$	17,477,890							$	17,057,993							$	15,223,656

Net Interest Margin					507,053		3.17	%					430,055		2.76	%					438,560		3.19	%

Less tax equivalent adjustments:
Investments					89								146								287
Loans					12,256								11,558								11,736
Net Interest Margin per Consolidated Statements of Income				$	494,708							$	418,351							$	426,537

The table below shows the change from year to year for each component of the tax equivalent net interest margin in the amount generated by volume changes and the amount generated by changes in the yield or rate (tax equivalent basis) for the periods presented ($ in thousands):


	2022 Compared to 2021									2021 Compared to 2020
	Increase (Decrease) Due To:									Increase (Decrease) Due To:
				Yield/									Yield/
	Volume			Rate			Net			Volume			Rate			Net
Interest earned on:
Federal funds sold and securities purchased under reverse repurchase agreements	$	—		$	74		$	74		$	(1	)	$	—		$	(1	)
Securities available for sale:
Taxable		4,508			3,838			8,346			12,509			(17,431	)		(4,922	)
Nontaxable		(7	)		3			(4	)		(212	)		27			(185	)
Securities held to maturity:
Taxable		10,962			1,711			12,673			(4,024	)		(606	)		(4,630	)
Nontaxable		(287	)		19			(268	)		(490	)		3			(487	)
PPP loans		(22,339	)		(13,748	)		(36,087	)		(16,498	)		26,581			10,083
Loans, net of unearned income (LHFS and LHFI)		32,932			76,984			109,916			14,945			(42,154	)		(27,209	)
Other earning assets		(2,008	)		7,321			5,313			1,974			(766	)		1,208
Total interest-earning assets		23,761			76,202			99,963			8,203			(34,346	)		(26,143	)

Interest paid on:
Interest-bearing demand deposits		648			10,855			11,503			1,279			(6,358	)		(5,079	)
Savings deposits		(73	)		1,815			1,742			1,344			(6,913	)		(5,569	)
Time deposits		(399	)		(722	)		(1,121	)		(1,968	)		(7,926	)		(9,894	)
Federal funds purchased and securities sold under repurchase agreements		233			5,662			5,895			95			(618	)		(523	)
Other borrowings		881			3,045			3,926			(81	)		(271	)		(352	)
Subordinated notes		9			(10	)		(1	)		4,342			(64	)		4,278
Junior subordinated debt securities		—			1,021			1,021			—			(499	)		(499	)
Total interest-bearing liabilities		1,299			21,666			22,965			5,011			(22,649	)		(17,638	)
Change in net interest income on a tax equivalent basis	$	22,462		$	54,536		$	76,998		$	3,192		$	(11,697	)	$	(8,505	)

The change in interest due to both volume and yield or rate has been allocated to change due to volume and change due to yield or rate in proportion to the absolute value of the change in each. Tax-exempt income has been adjusted to a tax equivalent basis using the federal statutory corporate tax rate in effect for each of the three years presented. The balances of nonaccrual loans and related income recognized have been included for purposes of these computations.

Provision for Credit Losses

The PCL, LHFI is the amount necessary to maintain the ACL for LHFI at the amount of expected credit losses inherent within the LHFI portfolio. The amount of PCL and the related ACL for LHFI are based on Trustmark’s ACL methodology. The PCL, LHFI totaled $21.7 million for 2022, compared to a negative PCL, LHFI of $21.5 million for 2021 and a PCL, LHFI of $36.1 million for 2020. The PCL, LHFI for 2022 was primarily driven by loan growth, specific reserves on individually analyzed loans, weakening of the macroeconomic forecasts and the nature and volume of the portfolio, partially offset by reserves released as a result of updates and adjustments to the qualitative factors.

FASB ASC Topic 326 requires Trustmark to estimate expected credit losses for off-balance sheet credit exposures which are not unconditionally cancellable by Trustmark. Trustmark maintains a separate ACL for off-balance sheet credit exposures, including unfunded commitments and letters of credit. Adjustments to the ACL on off-balance sheet credit exposures are recorded to the PCL, off-balance sheet credit exposures. The PCL, off-balance sheet credit exposures totaled $1.2 million for 2022 compared to a negative $2.9 million for 2021, and $8.9 million for 2020. The PCL, off-balance sheet credit exposures for 2022 primarily reflected an increase in unfunded balances.

See the section captioned “Allowance for Credit Losses” for information regarding Trustmark’s ACL methodology as well as further analysis of the PCL.

Noninterest Income

Noninterest income represented 29.3%, 34.7% and 39.2% of total revenue, before securities gains (losses), net in 2022, 2021 and 2020, respectively. The following table provides the comparative components of noninterest income for the periods presented ($ in thousands):


	Years Ended December 31,
	2022					2021					2020
	Amount		% Change			Amount		% Change			Amount		% Change
Service charges on deposit accounts	$	42,157		26.8	%	$	33,246		3.0	%	$	32,289		-24.2	%
Bank card and other fees		36,105		4.2	%		34,662		11.7	%		31,022		-2.2	%
Mortgage banking, net		28,306		-55.6	%		63,750		-49.3	%		125,822	n/m
Insurance commissions		53,721		10.7	%		48,511		7.4	%		45,176		6.6	%
Wealth management		35,013		-0.5	%		35,190		11.3	%		31,625		3.1	%
Other, net		9,842		50.2	%		6,551		-24.3	%		8,659		-11.7	%
Total Noninterest Income	$	205,144		-7.6	%	$	221,910		-19.2	%	$	274,593		46.8	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

Changes in various components of noninterest income for the year ended December 31, 2022 are discussed in further detail below. For analysis of Trustmark’s insurance commissions and wealth management income, please see the section captioned “Results of Segment Operations.”

Service Charges on Deposit Accounts

The increase in service charges on deposit accounts when 2022 is compared to 2021 was principally due to increases in NSF and overdraft fees on consumer interest checking accounts and commercial DDAs as well as service charges on consumer interest checking accounts.

Mortgage Banking, Net

The following table illustrates the components of mortgage banking, net included in noninterest income for the periods presented ($ in thousands):


	Years Ended December 31,
	2022						2021						2020
	Amount			% Change			Amount			% Change			Amount			% Change
Mortgage servicing income, net	$	26,291			3.2	%	$	25,476			7.6	%	$	23,681			3.5	%
Change in fair value-MSR from runoff		(14,034	)		-30.4	%		(20,160	)		21.5	%		(16,588	)		40.2	%
Gain on sales of loans, net		20,178			-64.0	%		55,976			-49.5	%		110,903		n/m
Mortgage banking income before net hedge ineffectiveness		32,435			-47.1	%		61,292			-48.1	%		117,996		n/m
Change in fair value-MSR from market changes		38,181		n/m				13,258		n/m				(26,147	)		24.0	%
Change in fair value of derivatives		(42,310	)	n/m				(10,800	)	n/m				33,973		n/m
Net hedge ineffectiveness		(4,129	)	n/m				2,458			-68.6	%		7,826		n/m
Mortgage banking, net	$	28,306			-55.6	%	$	63,750			-49.3	%	$	125,822		n/m

n/m - percentage changes greater than +/- 100% are not considered meaningful

The decrease in mortgage banking, net when 2022 is compared to 2021 was principally due to decreases in gain on sales of loans, net and the net hedge ineffectiveness partially offset by a decline in the MSR run-off. Mortgage loan production totaled $2.125 billion for 2022, a decrease of $678.1 million, or 24.2%, when compared to 2021. Mortgage loan production totaled $2.803 billion for 2021, a decrease of $181.7 million, or 6.1%, when compared to 2020. Loans serviced for others totaled $8.116 billion at December 31, 2022, compared with $7.953 billion at December 31, 2021, and $7.657 billion at December 31, 2020.

Representing a significant component of mortgage banking income is gain on sales of loans, net. The decrease in the gain on sales of loans, net when 2022 is compared to 2021 was primarily the result of decreases in the volume of loans sold as well as lower profit margins in secondary marketing activities partially offset by an increase in the mortgage valuation adjustment. Loan sales decreased $1.043 billion, or 45.6%, during 2022 to total $1.243 billion compared to a decrease of $246.0 million, or 9.7%, during 2021 to total $2.286 billion. The decrease in loan sales during 2022 was principally due to a decline in mortgage lending activity as result of rising interest rates. The decrease in loan sales during 2021 was principally due to a decline in mortgage lending activity as refinance activity slowed following the record setting levels of 2020.

Other Income, Net

The following table illustrates the components of other income, net included in noninterest income for the periods presented ($ in thousands):


	Years Ended December 31,
	2022						2021						2020
	Amount			% Change			Amount			% Change			Amount			% Change
Partnership amortization for tax credit purposes	$	(6,211	)		-22.5	%	$	(8,011	)		40.5	%	$	(5,700	)		-25.4	%
Increase in life insurance cash surrender value		6,673			0.6	%		6,630			-3.6	%		6,881			-4.5	%
Other miscellaneous income		9,380			18.3	%		7,932			6.1	%		7,478			-27.1	%
Total other, net	$	9,842			50.2	%	$	6,551			-24.3	%	$	8,659			-11.7	%

The increase in other income, net when 2022 is compared to 2021 was primarily due to an increase in other miscellaneous income as well as a decline in the amortization of tax credit partnerships. The increase in other miscellaneous income when 2022 is compared with 2021 was principally due to increases in cash management service fees and gains on the sales of three closed branch locations.

Noninterest Expense

The following table illustrates the comparative components of noninterest expense for the periods presented ($ in thousands):


	Years Ended December 31,
	2022					2021 (1)					2020
	Amount		% Change			Amount		% Change			Amount		% Change
Salaries and employee benefits	$	287,440		1.2	%	$	284,158		4.4	%	$	272,257		9.9	%
Services and fees		101,545		13.5	%		89,463		6.7	%		83,816		14.3	%
Net occupancy-premises		29,264		8.2	%		27,043		2.1	%		26,489		1.3	%
Equipment expense		24,448		0.5	%		24,337		4.6	%		23,277		-1.9	%
Litigation settlement expense		100,750	n/m				—		—			—		—
Other expense (2)		59,766		-7.0	%		64,295		6.3	%		60,462		4.1	%
Total noninterest expense	$	603,213		23.3	%	$	489,296		4.9	%	$	466,301		8.7	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

(1)

During 2021, Trustmark reclassified its credit loss expense related to off-balance sheet credit exposures from noninterest expense to PCL, off-balance sheet credit exposures. Prior periods have been reclassified accordingly.

(2)

During 2022, Trustmark reclassified its other real estate expense, net to other expense. Prior periods have been reclassified accordingly.

Changes in the various components of noninterest expense for the year ended December 31, 2022 are discussed in further detail below. Management considers disciplined expense management a key area of focus in the support of improving shareholder value.

Salaries and Employee Benefits

Trustmark completed voluntary early retirement programs during 2021 and 2020 and incurred $5.6 million and $4.3 million, respectively, of non-routine salaries and employee benefits expense related to these programs. Excluding these non-routine expenses, salaries and employee benefits increased $8.9 million, or 3.2%, when 2022 is compared to 2021, compared to an increase of $10.6 million, or 3.9%, when 2021 is compared to 2020.

The increase in salaries and employee benefits expense, excluding the non-routine expenses, for the year ended December 31, 2022 was principally due to increases in salaries expense primarily related to general merit increases and the addition of the Georgia LPO associates, commissions expense primarily related to improvements in insurance business volumes, management performance incentives, severance expense and other salaries expense, partially offset by a decline in commission expense related to mortgage production.

Services and Fees

The increase in services and fees when 2022 is compared to 2021 was primarily due to increases in professional services and fees, business processing outsourcing expenses and software licenses.

Net Occupancy-Premises

The increase in net occupancy-premises when 2022 is compared to 2021 was principally due to increases in landscaping expense, building rental expense primarily due to lease termination expense and depreciation of building improvements. Trustmark has continued efforts to optimize its branch network, reflecting changing customer preferences and the continued migration to mobile and digital channels. During 2022, Trustmark consolidated 12 branch offices, opened a full-service banking center as well as loan production offices in Birmingham, Alabama and Memphis, Tennessee.

Other Expense

The following table illustrates the comparative components of other noninterest expense for the periods presented ($ in thousands):


	Years Ended December 31,
	2022					2021					2020
	Amount		% Change			Amount		% Change			Amount		% Change
Loan expense (1)	$	16,173		6.8	%	$	15,148		-0.2	%	$	15,177		18.6	%
Amortization of intangibles		1,434		-38.1	%		2,316		-24.1	%		3,052		-25.9	%
FDIC assessment expense		7,385		33.9	%		5,515		-9.4	%		6,090		-5.5	%
Regulatory settlement charge		—	n/m				5,000	n/m				—		—
Other real estate expense, net (2)		1,173		-66.8	%		3,528		80.4	%		1,956		-49.9	%
Other miscellaneous expense (1)		33,601		2.5	%		32,788		-4.1	%		34,187		10.9	%
Total other expense	$	59,766		-7.0	%	$	64,295		6.3	%	$	60,462		11.6	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

(1)

During 2021, Trustmark reclassified certain expenses related to mortgage loan appraisals from other miscellaneous expense to loan expense. Prior period amounts have been reclassified accordingly.

(2)

During 2022, Trustmark reclassified its other real estate expense, net to other expense. Prior periods have been reclassified accordingly.

During the third quarter of 2021, Trustmark finalized a settlement with regulatory authorities to resolve fair lending allegations in the Memphis MSA. Trustmark incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents in majority-Black and Hispanic neighborhoods in the Memphis MSA. Excluding the non-routine regulatory settlement expense, other expense increased $471 thousand, or 0.8%, when 2022 is compared to 2021, compared to a decrease of $2.7 million, or 4.7%, when 2021 is compared to 2020.

The increase in other expense, excluding the non-routine regulatory settlement expense, when 2022 is compared to 2021 was principally due to increases in FDIC assessment expense, travel and entertainment expenses and loan expenses partially offset by a decline in other real estate expense, net.

For additional analysis of other real estate and foreclosure expenses, please see the section captioned “Nonperforming Assets, Excluding PPP and Acquired Loans.”

Results of Segment Operations

The following table provides the net income by reportable segment for the periods presented ($ in thousands):


	Years Ended December 31,
	2022		2021		2020
General Banking	$	55,121	$	131,247	$	145,939
Wealth Management		5,671		6,650		5,556
Insurance		11,095		9,468		8,530
Consolidated Net Income	$	71,887	$	147,365	$	160,025

General Banking

Net interest income for the General Banking Segment for 2022 increased $76.2 million, or 18.4%, when compared with 2021, principally due to increases in interest and fees on LHFS and LHFI and interest on securities, partially offset by a decline in interest and fees on PPP loans and an increase in total interest expense. Net interest income for the General Banking Segment for 2021 decreased $7.0 million, or 1.7%, when compared with 2020, principally due to declines in interest and fees on LHFS and LHFI and interest on securities, partially offset by a decline in interest expense on deposits and an increase in interest and fees on PPP loans. During 2021, Trustmark reclassified its credit loss expense related to off-balance sheet credit exposures from noninterest expense to PCL, off-balance sheet credit exposures. Prior periods have been reclassified accordingly. The PCL (LHFI and off-balance sheet credit exposures) for the General Banking Segment for 2022 totaled $22.9 million compared to a negative PCL of $24.4 million during 2021 and a PCL of $45.1 million during 2020. For more information on these net interest income items, please see the sections captioned “Financial Highlights” and “Results of Operations.”

Noninterest income for the General Banking Segment decreased $21.5 million, or 15.6%, during 2022 compared to a decrease of $59.8 million, or 30.3%, during 2021. The decrease in noninterest income for the General Banking Segment during 2022 was primarily due to the decrease in mortgage banking, net, partially offset by increases in service charges on deposit accounts and other income, net. The decrease in noninterest income for the General Banking Segment during 2021 was primarily due to decrease in mortgage banking, net and other income, net, partially offset by an increase in bank card and other fees. Noninterest income for the General Banking Segment represented 19.2% of total revenue for 2022, 25.0% for 2021 and 32.0% for 2020. Noninterest income for the General Banking Segment includes service charges on deposit accounts; bank card and other fees; mortgage banking, net and other income, net. For more information on these noninterest income items, please see the analysis included in the section captioned “Noninterest Income.”

Noninterest expense for the General Banking Segment increased $109.8 million, or 26.1%, during 2022 compared to an increase of $19.8 million, or 4.9%, during 2021. The increase in noninterest expense for the General Banking Segment for 2022 was principally due to increases in litigation settlement expense, services and fees, net occupancy-premises and salaries and employee benefits, partially offset by non-routine transaction expenses incurred during 2021. During the fourth quarter of 2022, Trustmark recognized litigation settlement expense of $100.0 million as well as an additional $750 thousand in legal fees as a result of the settlement relating to the litigation involving the Stanford Financial Group. The increase in noninterest expense for the General Banking Segment for 2021 was principally due to increases in salaries and employee benefits, data processing charges related to software, other miscellaneous expenses and other real estate expense, net. During the third quarter of 2021, Trustmark completed a voluntary early retirement program which resulted in non-routine transaction expenses of $5.7 million ($5.6 million of salaries and employee benefits expense and $89 thousand of other expense). In addition, during the third quarter of 2021, Trustmark finalized a settlement with regulatory authorities to resolve fair lending allegations in the Memphis MSA. Trustmark incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents in majority-Black and Hispanic neighborhoods in the Memphis MSA. For more information on these noninterest expense items, please see the analysis included in the section captioned “Noninterest Expense.”

Wealth Management

During 2022, net income for the Wealth Management Segment decreased $979 thousand, or 14.7%, compared to an increase of $1.1 million, or 19.7%, during 2021. The decrease in net income for the Wealth Management Segment during 2022 was principally due to an increase in noninterest expense. The increase in net income for the Wealth Management Segment during 2021 was principally due to an increase in noninterest income, partially offset by an increase in noninterest expense.

Net interest income for the Wealth Management Segment increased $160 thousand, or 3.1%, during 2022 compared to a decrease of $921 thousand, or 15.1%, during 2021. The increase in net interest income for the Wealth Management Segment during 2022 was principally due to an increase in interest and fees on loans partially offset by an increase in interest on deposits generated by the Private Banking Group. The decrease in net interest income for the Wealth Management Segment during 2021 was principally due to a decline in interest and fees on loans partially offset by a decrease in interest on deposits generated by the Private Banking Group. The PCL for the Wealth Management Segment for 2022 totaled a negative $21 thousand compared to a negative PCL of $9 thousand during 2021 and a negative PCL of $11 thousand during 2020.

Noninterest income for the Wealth Management Segment, which includes income related to investment management, trust and brokerage services, decreased $348 thousand, or 1.0%, during 2022, principally due to declines in income from brokerage services and trust management services partially offset by an increase in income from annuity services. Noninterest income for the Wealth Management Segment increased $3.8 million, or 12.0%, during 2021, principally due to an increase in income from brokerage services and trust management services. Noninterest expense increased $1.2 million, or 3.6%, during 2022 compared to an increase of $1.4 million, or 4.6%, during 2021. The increase in noninterest expense for the Wealth Management Segment for 2022 was principally due to an increase in salary and employee benefit expense, primarily due to increases in commissions expense and annual performance incentives, and data processing charges related to software, partially offset by a decline in other miscellaneous expenses. The increase

in noninterest expense for the Wealth Management Segment for 2021 was principally due to an increase in salary and employee benefit expense, primarily due to increases in commissions expense and annual performance incentives, partially offset by a decline in other miscellaneous expenses.

At December 31, 2022 and 2021, Trustmark held assets under management and administration of $16.913 billion and $15.703 billion and brokerage assets of $2.327 billion and $2.417 billion, respectively.

Insurance

Net income for the Insurance Segment during 2022 increased $1.6 million, or 17.2%, compared to an increase of $938 thousand, or 11.0%, during 2021. Noninterest income for the Insurance Segment, which predominately consists of insurance commissions, increased $5.1 million, or 10.5%, during 2022, compared to an increase of $3.3 million, or 7.4%, during 2021. The increase in noninterest income for the Insurance Segment during 2022 was principally due to increases in property and casualty commissions, other commission income and group health commissions. The increase in noninterest income for the Insurance Segment during 2021 was principally due to increases in property and casualty commissions and other commission income.

Noninterest expense for the Insurance Segment increased $2.9 million, or 8.1%, during 2022 and $1.8 million, or 5.4%, during 2021. The increase in noninterest expense for the Insurance Segment for 2022 was principally due to higher salaries expense resulting from modest general merit increases and higher commission expense due to improvements in business volumes, partially offset by a decrease in outside services and fees. The increase in noninterest expense for the Insurance Segment for 2021 was principally due to higher salaries expense resulting from modest general merit increases and higher commission expense due to improvements in business volumes, as well as increases in outside services and fees, partially offset by a decrease in other miscellaneous expense.

Trustmark performed an annual impairment test of the book value of goodwill held in the Insurance Segment as of October 1, 2022, 2021, and 2020. Based on this analysis, Trustmark concluded that no impairment charge was required. An extended period of falling prices and suppressed demand for the products of the Insurance Segment could result in impairment of goodwill in the future. FBBI’s ability to maintain the current income trend is dependent on the success of the subsidiary’s continued initiatives to attract new business through cross referrals between practice units and bank relationships and seeking new business in other markets.

Income Taxes

For the year ended December 31, 2022, Trustmark’s combined effective tax rate was 2.5% compared to 16.0% in 2021 and 15.7% in 2020. The decline in the effective tax rate for 2022 was principally due to the net loss recorded for the fourth quarter of 2022 as a result of the $100.8 million of litigation settlement expense. Trustmark’s effective tax rate continues to be less than the statutory rate primarily due to various tax-exempt income items and its utilization of income tax credit programs. Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis (i.e., new market tax credits, low income housing tax credits or historical tax credits). The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.

Financial Condition

Earning assets serve as the primary revenue streams for Trustmark and are comprised of securities, loans, federal funds sold, securities purchased under reverse repurchase agreements and other earning assets. Average earning assets totaled $16.014 billion, or 91.6% of total average assets, at December 31, 2022, compared with $15.569 billion, or 91.3% of total average assets, at December 31, 2021, an increase of $445.1 million, or 2.9%.

Securities

The securities portfolio is utilized by Management to manage interest rate risk, generate interest income, provide liquidity and use as collateral for public and wholesale funding. Risk and return can be adjusted by altering duration, composition and/or balance of the portfolio. The weighted-average life of the portfolio at December 31, 2022 and 2021 was 4.9 and 4.3 years, respectively.

When compared with December 31, 2021, total investment securities decreased by $62.8 million, or 1.8%, during 2022. This decrease resulted primarily from calls, maturities and pay-downs of the underlying loans of GSE guaranteed securities and a decline in the fair market value of securities available for sale partially offset by purchases of securities. Trustmark sold no securities during 2022 or 2021.

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale as securities held to maturity. At the date of this transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million net of tax). During 2022, Trustmark reclassified approximately $766.0 million of securities available for sale to securities held to

maturity to mitigate the potential adverse impact of a rising interest rate environment on the fair value of the available for sale securities and the related impact on tangible common equity. At the date of these transfers, the net unrealized holding loss on the available for sale securities totaled approximately $91.9 million ($68.9 million net of tax). The resulting net unrealized holding losses are being amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security.

At December 31, 2022, the net unamortized, unrealized loss on all transferred securities included in accumulated other comprehensive income (loss), net of tax, (AOCI) in the accompanying consolidated balance sheets totaled $92.3 million ($69.2 million net of tax) compared to $6.3 million ($4.7 million net of tax) at December 31, 2021.

Available for sale securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in AOCI, a separate component of shareholders’ equity. At December 31, 2022, available for sale securities totaled $2.024 billion, which represented 57.5% of the securities portfolio, compared to $3.239 billion, or 90.4%, at December 31, 2021. At December 31, 2022, unrealized losses, net on available for sale securities totaled $246.6 million compared to unrealized losses, net of $17.4 million at December 31, 2021. At December 31, 2022, available for sale securities consisted of U.S. Treasury securities, obligations of states and political subdivisions, GSE guaranteed mortgage-related securities and direct obligations of government agencies and GSEs.

Held to maturity securities are carried at amortized cost and represent those securities that Trustmark both intends and has the ability to hold to maturity. At December 31, 2022, held to maturity securities totaled $1.495 billion and represented 42.5% of the total securities portfolio, compared with $342.5 million, or 9.6%, at December 31, 2021.

The following table details the weighted-average yield for each range of maturities of securities available for sale and held to maturity using the amortized cost at December 31, 2022 (tax equivalent basis):


	Maturing
	Within One Year			After One, But Within Five Years			After Five, But Within Ten Years			After Ten Years			Total
Securities available for sale
U.S. Treasury securities		2.87	%		1.17	%		1.22	%		—			1.29	%
U.S. Government agency obligations		6.83	%		4.85	%		2.26	%		5.18	%		4.17	%
Obligations of states and political subdivisions		—			2.77	%		4.52	%		—			4.15	%
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		0.94	%		1.78	%		3.54	%		2.47	%		2.47	%
Issued by FNMA and FHLMC		—			2.08	%		1.97	%		1.38	%		1.45	%
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA		—			2.36	%		2.38	%		2.16	%		2.26	%
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA		4.17	%		4.88	%		3.36	%		3.55	%		3.44	%
Total securities available for sale		3.24	%		1.27	%		2.61	%		1.46	%		1.61	%

Securities held to maturity
U.S. Treasury securities		—			—			1.04	%		—			1.04	%
Obligations of states and political subdivisions		4.15	%		5.17	%		—			—			4.22	%
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		—			—			—			3.05	%		3.05	%
Issued by FNMA and FHLMC		—			—			1.89	%		1.58	%		1.58	%
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA		—			—			1.93	%		1.95	%		1.94	%
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA		—			3.04	%		2.09	%		2.96	%		2.33	%
Total securities held to maturity		4.15	%		3.04	%		2.03	%		1.69	%		2.01	%

Mortgage-backed securities and collateralized mortgage obligations are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of approximately 99.8% of the portfolio in GSE-backed obligations and other Aaa-rated securities as determined by Moody’s Investors Services (Moody’s). None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of stock ownership in the FHLB of Dallas, FHLB of Atlanta and FRBA, Trustmark does not hold any other equity investment in a GSE.

At December 31, 2022, Trustmark did not hold securities of any one issuer with a carrying value exceeding ten percent of total shareholders’ equity, other than certain GSEs which are exempt from inclusion. Management continues to closely monitor the credit quality as well as the ratings of the debt and mortgage-backed securities issued by the GSEs and held in Trustmark’s securities portfolio.

The following table presents Trustmark’s securities portfolio by amortized cost and estimated fair value and by credit rating, as determined by Moody’s, at December 31, 2022 ($ in thousands):


	Amortized Cost					Estimated Fair Value
	Amount		%			Amount		%
Securities Available for Sale
Aaa	$	2,265,889		99.8	%	$	2,018,912		99.7	%
A1 to A3		1,028		—			1,017		0.1	%
Not Rated (1)		3,792		0.2	%		4,153		0.2	%
Total securities available for sale	$	2,270,709		100.0	%	$	2,024,082		100.0	%

Securities Held to Maturity
Aaa	$	1,490,004		99.7	%	$	1,402,079		99.7	%
Aa1 to Aa3		3,001		0.2	%		2,999		0.2	%
Not Rated (1)		1,509		0.1	%		1,511		0.1	%
Total securities held to maturity	$	1,494,514		100.0	%	$	1,406,589		100.0	%

(1)

Not rated issues primarily consist of Mississippi municipal general obligations.

The table above presenting the credit rating of Trustmark’s securities is formatted to show the securities according to the credit rating category, and not by category of the underlying security. At December 31, 2022, approximately 99.7% of the available for sale securities, measured at the estimated fair value, and 99.7% of the held to maturity securities, measured at amortized cost, were rated Aaa.

LHFS

At December 31, 2022, LHFS totaled $135.2 million, consisting of $64.4 million of residential real estate mortgage loans in the process of being sold to third parties and $70.8 million of Government National Mortgage Association (GNMA) optional repurchase loans. At December 31, 2021, LHFS totaled $275.7 million, consisting of $191.2 million of residential real estate mortgage loans in the process of being sold to third parties and $84.5 million of GNMA optional repurchase loans. Please refer to the nonperforming assets table that follows for information on GNMA loans eligible for repurchase which are past due 90 days or more.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during 2022 or 2021.

For additional information regarding the GNMA optional repurchase loans, please see the section captioned “Past Due LHFS” included in Note 4 – LHFI and Allowance for Credit Losses, LHFI of Part II. Item 8. – Financial Statements and Supplementary Data of this report.

LHFI

The table below provides the carrying value of the LHFI portfolio by loan class for the years ended December 31, 2022 and 2021 ($ in thousands):


	December 31,
	2022					2021
	Amount		%			Amount		%
Loans secured by real estate:
Construction, land development and other land	$	690,616		5.7	%	$	596,968		5.8	%
Other secured by 1-4 family residential properties		590,790		4.8	%		517,683		5.1	%
Secured by nonfarm, nonresidential properties		3,278,830		26.9	%		2,977,084		29.1	%
Other real estate secured		742,538		6.1	%		726,043		7.1	%
Other loans secured by real estate:
Other construction		1,028,926		8.4	%		711,813		6.9	%
Secured by 1-4 family residential properties		2,185,057		17.9	%		1,460,310		14.2	%
Commercial and industrial loans		1,821,259		14.9	%		1,414,279		13.8	%
Consumer loans		170,230		1.4	%		162,555		1.6	%
State and other political subdivision loans		1,223,863		10.0	%		1,146,251		11.2	%
Other commercial loans		471,930		3.9	%		534,843		5.2	%
LHFI	$	12,204,039		100.0	%	$	10,247,829		100.0	%

LHFI at December 31, 2022 increased $1.956 billion, or 19.1%, compared to December 31, 2021. The increase in LHFI during 2022 was reflecting net growth in all classes of LHFI with the exception of other commercial LHFI.

LHFI secured by real estate (loans secured by real estate and other loans secured by real estate) increased $1.527 billion, or 21.8%, during 2022 representing net growth in Trustmark's Mississippi, Alabama and Texas market regions partially offset by net declines in the Tennessee and Florida market regions. LHFI secured by 1-4 family residential properties increased $724.7 million, or 49.6%, during 2022, primarily in the Mississippi market region as a result of Trustmark's decision to retain certain mortgage loans in its portfolio. Other construction loans increased $317.1 million, or 44.6%, during 2022 primarily due to new construction loans across all five market regions partially offset by other construction loans moved to other loan categories upon the completion of the related construction project. During 2022, $619.2 million loans were moved from other construction to other loan categories, including $257.2 million to multi-family residential loans, $238.0 million to nonowner-occupied loans and $121.4 million to owner-occupied loans. Excluding all reclassifications between loan categories, growth in other construction loans across all five market regions totaled $919.1 million during 2022. LHFI secured by nonfarm, nonresidential properties (NFNR LHFI) increased $301.7 million, or 10.1%, during 2022, principally due to movement from the other construction loans category. Excluding other construction loan reclassifications, the NFNR LHFI portfolio decreased $57.6 million, or 1.9%, during 2022 primarily due to declines in owner-occupied loans in the Alabama, Mississippi and Florida market regions as well as declines in nonowner-occupied loans in the Alabama, Florida and Texas market regions, which were partially offset by growth in nonowner-occupied loans in the Mississippi market region and owner-occupied loans in the Texas market region. LHFI secured by construction, land development and other land increased $93.6 million, or 15.7%, during 2022 principally due to growth in 1-4 family construction loans in Trustmark's Alabama and Mississippi market regions. LHFI secured by other 1-4 family residential properties, which primarily consists of revolving home equity lines of credit, increased $73.1 million, or 14.1%, during 2022 reflecting growth across all five market regions. LHFI secured by other real estate increased $16.5 million, or 2.3%, during 2022, primarily due to other construction loans that moved to LHFI secured by multi-family residential properties in the Texas, Alabama and Mississippi market regions partially offset by pay-offs of LHFI secured by multi-family residential properties. Excluding other construction loan reclassifications, LHFI secured by other real estate declined by $240.7 million, or 33.2%.

Commercial and industrial LHFI increased $407.0 million, or 28.8%, during 2022, primarily due to growth in Trustmark’s Mississippi and Alabama market regions partially offset by declines in the Tennessee and Texas market regions. State and other political subdivision LHFI increased $77.6 million, or 6.8%, during 2022 principally due to growth in the Mississippi market region partially offset by declines in the Alabama, Texas, Florida and Tennessee market regions. Other commercial LHFI decreased $62.9 million, or 11.8%, during 2022, principally due to a decline in the Mississippi market region partially offset by growth in the Tennessee and Texas market regions.

The following table provides information regarding Trustmark’s home equity loans and home equity lines of credit which are included in the LHFI secured by 1-4 family residential properties at December 31, 2022 and 2021 ($ in thousands):


	December 31,
	2022			2021
Home equity loans	$	45,532		$	36,223
Home equity lines of credit		412,013			351,128
Percentage of loans and lines for which Trustmark holds first lien		51.7	%		58.2	%
Percentage of loans and lines for which Trustmark does not hold first lien		48.3	%		41.8	%

Due to the increased risk associated with second liens, loan terms and underwriting guidelines differ from those used for products secured by first liens. Loan amounts and loan-to-value ratios are limited and are lower for second liens than first liens. Also, interest rates and maximum amortization periods are adjusted accordingly. In addition, regardless of lien position, the passing credit score for approval of all home equity lines of credit is higher than that of term loans. The ACL on LHFI is also reflective of the increased risk related to second liens through application of a greater loss factor to this portion of the portfolio.

In the following tables, LHFI reported by region (along with related nonperforming assets and net charge-offs) are associated with location of origination except for loans secured by 1-4 family residential properties (representing traditional mortgages) and credit cards. These loans are included in the Mississippi market region because they are centrally analyzed and approved as part of a specific line of business located at Trustmark’s headquarters in Jackson, Mississippi.

The following table presents the LHFI composition by region at December 31, 2022 and reflects a diversified mix of loans by region ($ in thousands):


	December 31, 2022
LHFI Composition by Region	Total		Alabama		Florida		Mississippi		Tennessee		Texas
Loans secured by real estate:
Construction, land development and other land	$	690,616	$	314,106	$	50,445	$	196,141	$	31,196	$	98,728
Other secured by 1-4 family residential properties		590,790		133,596		50,672		303,551		74,268		28,703
Secured by nonfarm, nonresidential properties		3,278,830		895,306		212,185		1,394,562		172,432		604,345
Other real estate secured		742,538		202,453		2,013		339,592		6,822		191,658
Other loans secured by real estate:
Other construction		1,028,926		527,192		15,475		225,069		2,009		259,181
Secured by 1-4 family residential properties		2,185,057		—		—		2,179,543		5,514		—
Commercial and industrial loans		1,821,259		502,492		26,496		773,135		285,706		233,430
Consumer loans		170,230		24,101		8,520		107,109		18,323		12,177
State and other political subdivision loans		1,223,863		77,017		62,962		859,117		27,881		196,886
Other commercial loans		471,930		74,549		9,253		264,901		58,171		65,056
LHFI	$	12,204,039	$	2,750,812	$	438,021	$	6,642,720	$	682,322	$	1,690,164

Construction, Land Development and Other Land Loans by Region
Lots	$	71,964	$	37,553	$	9,802	$	16,654	$	1,923	$	6,032
Development		140,114		56,653		1,392		46,940		6,798		28,331
Unimproved land		108,972		22,548		14,348		35,177		5,039		31,860
1-4 family construction		369,566		197,352		24,903		97,370		17,436		32,505
Construction, land development and other land loans	$	690,616	$	314,106	$	50,445	$	196,141	$	31,196	$	98,728

Loans Secured by Nonfarm, Nonresidential (NFNR) Properties by Region
Nonowner-occupied:
Retail	$	343,073	$	133,173	$	33,675	$	91,921	$	21,695	$	62,609
Office		271,112		122,818		17,394		70,836		10,435		49,629
Hotel/motel		298,159		170,048		40,031		60,191		27,889		—
Mini-storage		155,037		28,072		2,104		105,229		482		19,150
Industrial		333,650		68,863		17,523		121,055		2,799		123,410
Health care		49,363		17,633		989		26,836		343		3,562
Convenience stores		33,721		7,416		641		14,959		593		10,112
Nursing homes/senior living		390,739		136,986		—		184,730		5,595		63,428
Other		136,120		35,040		9,793		61,086		16,397		13,804
Total nonowner-occupied loans		2,010,974		720,049		122,150		736,843		86,228		345,704

Owner-occupied:
Office		165,403		43,628		36,375		48,325		8,827		28,248
Churches		72,472		16,167		5,255		41,036		7,165		2,849
Industrial warehouses		175,272		19,344		4,996		47,413		16,872		86,647
Health care		130,604		12,216		6,384		95,437		2,341		14,226
Convenience stores		136,785		12,558		21,581		65,069		376		37,201
Retail		101,087		11,360		8,118		44,578		19,187		17,844
Restaurants		55,944		3,999		4,169		32,275		12,229		3,272
Auto dealerships		49,304		6,794		228		24,282		18,000		—
Nursing homes/senior living		237,082		36,132		—		174,750		—		26,200
Other		143,903		13,059		2,929		84,554		1,207		42,154
Total owner-occupied loans		1,267,856		175,257		90,035		657,719		86,204		258,641
Loans secured by NFNR properties	$	3,278,830	$	895,306	$	212,185	$	1,394,562	$	172,432	$	604,345

Trustmark’s variable rate LHFI are based primarily on various prime and LIBOR interest rate bases. Trustmark transitioned to SOFR for new variable rate loans as of January 1, 2022. The following table provides information regarding Trustmark’s LHFI maturities by loan class and interest rate terms at December 31, 2022 ($ in thousands):


	Maturing
			One Year		Five Years
	Within		Through		Through		After
	One Year		Five		Fifteen		Fifteen
	or Less		Years		Years		Years		Total
Loans secured by real estate:
Construction, land development and other land	$	399,433	$	233,465	$	22,374	$	35,344	$	690,616
Other secured by 1-4 family residential properties		61,284		239,654		274,914		14,938		590,790
Secured by nonfarm, nonresidential properties		635,757		2,011,915		619,686		11,472		3,278,830
Other real estate secured		235,879		428,512		78,046		101		742,538
Other loans secured by real estate:
Other construction		102,514		888,701		37,464		247		1,028,926
Secured by 1-4 family residential properties		37,192		151,821		1,142,823		853,221		2,185,057
Commercial and industrial loans		337,984		1,368,488		113,467		1,320		1,821,259
Consumer loans		47,755		116,736		5,739		—		170,230
State and other political subdivision loans		200,890		493,484		500,371		29,118		1,223,863
Other loans		104,617		337,076		29,806		431		471,930
LHFI		2,163,305		6,269,852		2,824,690		946,192		12,204,039

Loans with fixed interest rates:
Loans secured by real estate:
Construction, land development and other land	$	94,445	$	58,030	$	16,372	$	35,344	$	204,191
Other secured by 1-4 family residential properties		32,781		98,516		30,523		390		162,210
Secured by nonfarm, nonresidential properties		194,027		1,043,561		244,611		—		1,482,199
Other real estate secured		31,761		109,172		9,344		101		150,378
Other loans secured by real estate:
Other construction		4,433		22,109		7,128		247		33,917
Secured by 1-4 family residential properties		3,926		37,881		420,153		848,954		1,310,914
Commercial and industrial loans		70,377		467,143		74,544		—		612,064
Consumer loans		23,607		113,495		5,739		—		142,841
State and other political subdivision loans		197,421		470,359		481,185		14,118		1,163,083
Other loans		21,880		104,481		18,942		75		145,378
LHFI		674,658		2,524,747		1,308,541		899,229		5,407,175

Loans with variable interest rates:
Loans secured by real estate:
Construction, land development and other land	$	304,988	$	175,435	$	6,002	$	—	$	486,425
Other secured by 1-4 family residential properties		28,503		141,138		244,391		14,548		428,580
Secured by nonfarm, nonresidential properties		441,730		968,354		375,075		11,472		1,796,631
Other real estate secured		204,118		319,340		68,702		—		592,160
Other loans secured by real estate:
Other construction		98,081		866,592		30,336		—		995,009
Secured by 1-4 family residential properties		33,266		113,940		722,670		4,267		874,143
Commercial and industrial loans		267,607		901,345		38,923		1,320		1,209,195
Consumer loans		24,148		3,241		—		—		27,389
State and other political subdivision loans		3,469		23,125		19,186		15,000		60,780
Other loans		82,737		232,595		10,864		356		326,552
LHFI		1,488,647		3,745,105		1,516,149		46,963		6,796,864

Allowance for Credit Losses

LHFI

Trustmark’s ACL methodology for LHFI is based upon guidance within FASB ASC Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost,” as well as regulatory guidance from its primary regulator. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the LHFI portfolio is continuously monitored by Management and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within Trustmark’s existing LHFI portfolio. The ACL on LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

The econometric models currently in production reflect segment or pool level sensitivities of probability of default (PD) to changes in macroeconomic variables. By measuring the relationship between defaults and changes in the economy, the quantitative reserve incorporates reasonable and supportable forecasts of future conditions that will affect the value of its assets, as required by FASB ASC Topic 326. Under stable forecasts, these linear regressions will reasonably predict a pool’s PD. However, due to the COVID-19 pandemic, the macroeconomic variables used for reasonable and supportable forecasting changed rapidly. At the current levels, it is not clear that the models currently in production will produce reasonably representative results since the models were originally estimated using data beginning in 2004 through 2019. During this period, a traditional, albeit severe, economic recession occurred. Thus, econometric models are sensitive to similar future levels of PD.

In order to prevent the econometric models from extrapolating beyond reasonable boundaries of their input variables, Trustmark chose to establish an upper and lower limit process when applying the periodic forecasts. In this way, Management will not rely upon unobserved and untested relationships in the setting of the quantitative reserve. This approach applies to all input variables, including: Southern Unemployment, National Unemployment, National Gross Domestic Product (GDP), Southern Vacancy Rate and the Prime Rate. The upper and lower limits are based on the distribution of the macroeconomic variable by selecting extreme percentiles at the upper and lower limits of the distribution, the 1st and 99th percentiles, respectively. These upper and lower limits are then used to calculate the PD for the forecast time period in which the forecasted values are outside of the upper and lower limit range. Due to multiple periods having a PD or loss given default (LGD) at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on Trustmark's historical loss experience and applied at a portfolio level.

The external factors qualitative factor is Management’s best judgement on the loan or pool level impact of all factors that affect the portfolio that are not accounted for using any other part of the ACL methodology (i.e., natural disasters, changes in legislation, impacts due to technology and pandemics). Trustmark's External Factor – Pandemic ensures reserve adequacy for collectively evaluated loans most likely to be impacted by the unique economic and behavioral conditions created by the COVID-19 pandemic. Additional qualitative reserves are derived based on two principles. The first is the disconnect of economic factors to Trustmark’s modeled PD (derived from the econometric models underpinning the quantitative pooled reserves). During the pandemic, extraordinary measures by the federal government were made available to consumers and businesses, including COVID-19 loan payment concessions, direct transfer payments to households, tax deferrals and reduced interest rates, among others. These government interventions may have extended the lag between economic conditions and default, relative to what was captured in the model development data. Because Trustmark’s econometric PD models rely on the observed relationship from the economic downturn from 2007 to 2009 in both timing and severity, Management does not expect the models to reflect these current conditions. For example, while the models would predict contemporaneous unemployment peaks and loan defaults, this may not occur when borrowers can request payment deferrals. Thus, for the affected population, economic conditions are not fully considered as a part of Trustmark’s quantitative reserve. The second principle is the change in risk that is identified by rating changes. As a part of Trustmark’s credit review process, loans in the affected population have been given more frequent screening to ensure accurate ratings are maintained through this dynamic period. Trustmark’s quantitative reserve does not directly address changes in ratings; thus, a migration qualitative factor was designed to work in concert with the quantitative reserve.

As discussed above, the disconnect of economic factors means that changes in rating caused by deteriorating and weak economic conditions as a result of the pandemic are not being captured in the quantitative reserve. During 2020, due to unforeseen pandemic conditions that varied from Management’s expectations, additional reserves were further dimensioned in order to appropriately reflect the risk within the portfolio related to the COVID-19 pandemic. In an effort to ensure the External Factor – Pandemic qualitative factor

is reasonable and supportable, historical Trustmark loss data was leveraged to construct a framework that is quantitative in nature. To dimension the additional reserve, Management uses the sensitivity of the quantitative commercial loan reserve to changes in macroeconomic conditions to apply to loans rated acceptable or better (risk rates 1-4). In addition, to account for the known changes in risk, a weighted average of the commercial loan portfolio loss rate, derived from the performance trends qualitative factor, is used to dimension additional reserves for downgraded credits. Loans rated acceptable with risk (risk rate 5) or watch (risk rate 6) received the additional reserves based on the average of the macroeconomic conditions and weighted average of the commercial loan portfolio loss rate while the loans rated special mention (risk rate 7) and substandard (risk rate 8) received additional reserves based on the weighted-average described above. During the fourth quarter of 2022, Management noted that all pass rate loans (risk rate 5 and 6) related to the External Factor - Pandemic qualitative factor either did not experience significant stress related to the pandemic or have since recovered and does not expect future stresses attributed to the pandemic that may affect these loans. As a result, Management decided to accelerate the release of the additional pandemic reserves on all pass rate loans as a result of pandemic conditions resolving.

During the first quarter of 2022, in order to account for the potential uncertainty related to higher prices and low economic growth, Trustmark chose to enact a portion of the qualitative framework, External Factor - Stagflation. Management calculated the reserve using a third-party stagflation forecast and compared it to the third-party baseline forecast used in the quantitative modeling. The weighted differential was added as qualitative reserves to account for potential uncertainty. During the fourth quarter of 2022, Management determined that the likelihood of a stagflation scenario had sufficiently diminished. Management identified that the potential had already been reduced and effectively captured within a nominally more negative baseline economic forecast. As a result, Management elected to resolve the External Factor - Stagflation and fully release the reserves.

Determining the appropriateness of the allowance is complex and requires judgment by Management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall LHFI portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense.

For a complete description of Trustmark’s ACL methodology and the quantitative and qualitative factors included in the calculation, please see Note 4 – LHFI and Allowance for Credit Losses, LHFI included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

At December 31, 2022, the ACL on LHFI was $120.2 million, an increase of $20.8 million, or 20.9%, when compared with December 31, 2021. The increase in the ACL on LHFI during 2022 was principally due to loan growth, specific reserves on individually analyzed loans, weakening of the macroeconomic forecasts and the nature and volume of the portfolio, partially offset by reserves released as a result of updates and adjustments to the qualitative factors. Allocation of Trustmark’s ACL on LHFI represented 0.85% of commercial LHFI and 1.41% of consumer and home mortgage LHFI, resulting in an ACL to total LHFI of 0.99% at December 31, 2022. This compares with an ACL to total LHFI of 0.97% at December 31, 2021, which was allocated to commercial LHFI at 1.00% and to consumer and home mortgage LHFI at 0.87%.

The table below illustrates the changes in Trustmark’s ACL on LHFI as well as Trustmark’s loan loss experience for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021			2020
Balance at beginning of period	$	99,457		$	117,306		$	84,277
FASB ASU 2016-03 Adoption Adjustment:
LHFI		—			—			(3,039	)
Allowance for loan losses, acquired loans transfer		—			—			815
Acquired loans ACL adjustment		—			—			1,007
LHFI charged off		(11,332	)		(10,275	)		(11,475	)
Recoveries		10,412			13,925			9,608
Net (charge-offs) recoveries		(920	)		3,650			(1,867	)
PCL, LHFI		21,677			(21,499	)		36,113
Balance at end of period	$	120,214		$	99,457		$	117,306

Charge-offs exceeded recoveries for 2022 resulting in net charge-offs of $920 thousand, or 0.01% of average loans (LHFS and LHFI), compared to net recoveries of $3.7 million, or -0.04% of average loans (LHFS and LHFI), in 2021, and net charge-offs of $1.9 million, or 0.02% of average loans (LHFS and LHFI), in 2020. The increase in net charge-offs during 2022 was principally due to declines in recoveries in the Mississippi, Tennessee and Texas market regions as well as an increase in charge-offs in the Tennessee market region, partially offset by an increase in recoveries in the Alabama market region.

The following table presents the net (charge-offs) recoveries by geographic market region for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021			2020
Alabama	$	2,019		$	1,299		$	(1,448	)
Florida		652			521			390
Mississippi		(2,713	)		(111	)		814
Tennessee		(790	)		940			(1,775	)
Texas		(88	)		1,001			152
Total net (charge-offs) recoveries	$	(920	)	$	3,650		$	(1,867	)

The following table presents selected credit ratios for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021			2020
ACL, LHFI to total LHFI		0.99	%		0.97	%		1.19	%
ACL, LHFI	$	120,214		$	99,457		$	117,306
LHFI		12,204,039			10,247,829			9,824,524

Nonaccrual LHFI to total LHFI		0.53	%		0.61	%		0.64	%
Nonaccrual LHFI	$	65,972		$	62,698		$	63,128
LHFI		12,204,039			10,247,829			9,824,524

ACL, LHFI to nonaccrual LHFI		182.22	%		158.63	%		185.82	%
ACL, LHFI	$	120,214		$	99,457		$	117,306
Nonaccrual LHFI		65,972			62,698			63,128

Net (charge-offs) recoveries to average LHFI:
Construction, land development and other land loans		0.16	%		0.28	%		0.14	%
Net (charge-offs) recoveries	$	1,054		$	1,525		$	704
Average LHFI		655,680			551,266			490,036
Other loans secured by 1-4 family residential properties		0.07	%		0.08	%		0.05	%
Net (charge-offs) recoveries	$	372		$	396		$	261
Average LHFI		541,383			505,063			550,423
Loans secured by nonfarm, nonresidential properties		0.05	%		0.04	%		-0.12	%
Net (charge-offs) recoveries	$	1,418		$	1,076		$	(3,231	)
Average LHFI		3,094,532			2,846,103			2,628,240
Other loans secured by real estate		-0.02	%		—			0.01	%
Net (charge-offs) recoveries	$	(117	)	$	20		$	60
Average LHFI		636,658			971,881			910,672
Other construction loans		0.01	%		0.01	%		0.03	%
Net (charge-offs) recoveries	$	69		$	47		$	208
Average LHFI		831,435			757,716			776,546
Loans secured by 1-4 family residential properties		—			—			0.01	%
Net (charge-offs) recoveries	$	13		$	(49	)	$	160
Average LHFI		1,881,006			1,328,220			1,230,319
Commercial and industrial loans		0.02	%		0.03	%		0.01	%
Net (charge-offs) recoveries	$	284		$	336		$	179
Average LHFI		1,603,499			1,331,537			1,388,180
Consumer loans		-0.35	%		0.02	%		-0.13	%
Net (charge-offs) recoveries	$	(562	)	$	25		$	(215	)
Average LHFI		161,145			156,826			165,249
State and other political subdivision loans		—			—			—
Net (charge-offs) recoveries	$	—		$	—		$	—
Average LHFI		1,159,939			1,098,190			943,281
Other commercial loans		-0.72	%		0.06	%		—
Net (charge-offs) recoveries	$	(3,451	)	$	274		$	7
Average LHFI		477,296			474,291			560,360
Total LHFI		-0.01	%		0.04	%		-0.02	%
Net (charge-offs) recoveries	$	(920	)	$	3,650		$	(1,867	)
Average LHFI		11,042,573			10,021,093			9,643,306

The PCL, LHFI for 2022 totaled 0.19% of average loans (LHFS and LHFI), compared to -0.21% of average loans (LHFS and LHFI) in 2021 and 0.36% of average loans (LHFS and LHFI) in 2020. The PCL, LHFI for 2022 primarily reflected loan growth, specific reserves on individually analyzed loans, weakening of the macroeconomic forecasts and the nature and volume of the portfolio, partially offset by reserves released as a result of updates and adjustments to the qualitative factors.

Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which is included on the accompanying consolidated balance sheets. Expected credit losses for off-balance sheet credit exposures are estimated by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by Trustmark. Trustmark calculates a loan pool level unfunded amount for the period. Trustmark calculates an expected funding rate each period which is applied to each pool’s unfunded commitment balances to ensure that reserves will be applied to each pool based upon balances expected to be funded based upon historical levels. Additionally, a reserve rate is applied to the unfunded commitment balance, which incorporates both quantitative and qualitative aspects of the current period’s expected credit loss rate. The reserve rate is loan pool specific and is applied to the unfunded amount to ensure loss factors, both quantitative and qualitative, are being considered on the unfunded portion of the loan pool, consistent with the methodology applied to the funded loan pools. See the section captioned “Lending Related” in Note 16 – Commitments and Contingencies included in Part II. Item 8. – Financial Statements and Supplementary Data of this report for complete description of Trustmark’s ACL methodology on off-balance sheet credit exposures.

Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures. At December 31, 2022, the ACL on off-balance sheet credit exposures totaled $36.8 million compared to $35.6 million at December 31, 2021, an increase of $1.2 million, or 3.4%. The PCL, off-balance sheet credit exposures totaled $1.2 million for 2022, compared to a negative PCL, off-balance sheet credit exposures of $2.9 million for 2021 and a PCL, off-balance sheet credit exposures of $8.9 million for 2020. The PCL, off-balance sheet credit exposures for 2022 primarily reflected an increase in unfunded balances.

Nonperforming Assets, Excluding PPP Loans

The table below provides the components of the nonperforming assets, excluding PPP loans, by geographic market region at December 31, 2022 and 2021 ($ in thousands):


	December 31,
	2022			2021
Nonaccrual LHFI
Alabama	$	12,300		$	8,182
Florida		227			313
Mississippi		24,683			21,636
Tennessee		5,566			10,501
Texas		23,196			22,066
Total nonaccrual LHFI		65,972			62,698
Other real estate
Alabama		194			—
Mississippi		1,769			4,557
Tennessee		23			—
Total other real estate		1,986			4,557
Total nonperforming assets	$	67,958		$	67,255

Nonperforming assets/total loans (LHFS and LHFI) and other real estate		0.55	%		0.64	%

Loans Past Due 90 days or more
LHFI	$	3,929		$	2,114
LHFS - Guaranteed GNMA services loans (1)	$	49,320		$	69,894

(1)

No obligation to repurchase.

For additional information regarding the Trustmark’s serviced GNMA loans eligible for repurchase, please see the section captioned “Loans Held for Sale (LHFS)” included in Note 1 – Significant Accounting Policies of Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Nonaccrual LHFI

At December 31, 2022, nonaccrual LHFI totaled $66.0 million, or 0.53% of total LHFS and LHFI, reflecting an increase of $3.3 million, or 5.2%, relative to December 31, 2021. The increase in nonaccrual LHFI was primarily due to LHFI placed on nonaccrual status

partially offset by reductions, pay-offs and charge-offs of nonaccrual LHFI in the Mississippi, Alabama, Texas and Tennessee market regions.

For additional information regarding nonaccrual LHFI, see the section captioned “Nonaccrual and Past Due LHFI” in Note 4 – LHFI and Allowance for Credit Losses, LHFI included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Other Real Estate

Other real estate at December 31, 2022 decreased $2.6 million, or 56.4%, when compared with December 31, 2021, principally due to properties sold in Trustmark’s Mississippi market region partially offset by properties foreclosed in the Mississippi market region.

The following tables illustrate changes in other real estate by geographic market region for the periods presented ($ in thousands):


	Year Ended December 31, 2022
	Total			Alabama			Florida		Mississippi			Tennessee
Balance at beginning of period	$	4,557		$	—		$	—	$	4,557		$	—
Additions		1,533			151			—		1,359			23
Disposals		(4,142	)		(48	)		—		(4,094	)		—
Write-downs		38			91			—		(53	)		—
Balance at end of period	$	1,986		$	194		$	—	$	1,769		$	23


	Year Ended December 31, 2021
	Total			Alabama			Florida		Mississippi			Tennessee
Balance at beginning of period	$	11,651		$	3,271		$	—	$	8,330		$	50
Additions		770			—			—		717			53
Disposals		(6,932	)		(3,063	)		—		(3,741	)		(128	)
Write-downs		(932	)		(208	)		—		(749	)		25
Balance at end of period	$	4,557		$	—		$	—	$	4,557		$	—


	Year Ended December 31, 2020
	Total			Alabama			Florida			Mississippi			Tennessee
Balance at beginning of period	$	29,248		$	8,133		$	5,877		$	14,919		$	319
Additions		635			77			—			339			219
Disposals		(16,446	)		(3,887	)		(5,861	)		(6,230	)		(468	)
Write-downs		(1,786	)		(1,052	)		(16	)		(698	)		(20	)
Balance at end of period	$	11,651		$	3,271		$	—		$	8,330		$	50

Write-downs of other real estate decreased $970 thousand during 2022 compared to a decrease of $854 thousand, or 47.8%, during 2021. The decrease in write-downs of other real estate during 2022 compared to 2021 was primarily due to reserves released as a result of properties sold in the Mississippi and Alabama market regions.

The following table illustrates other real estate by type of property at December 31, 2022 and 2021 ($ in thousands):


	December 31,
	2022		2021
1-4 family residential properties	$	1,128	$	94
Nonfarm, nonresidential properties		561		4,463
Other real estate properties		297		—
Total other real estate	$	1,986	$	4,557

Deposits

Trustmark’s deposits are its primary source of funding and consist primarily of core deposits from the communities Trustmark serves. Deposits include interest-bearing and noninterest-bearing demand accounts, savings, MMDA, certificates of deposit and individual retirement accounts. Total deposits were $14.438 billion at December 31, 2022 compared to $15.087 billion at December 31, 2021, a decrease of $649.5 million, or 4.3%, primarily reflecting a decrease in noninterest-bearing deposit accounts. During 2022, noninterest-bearing deposits decreased $677.3 million, or 14.2%, reflecting declines in all categories of noninterest-bearing deposit accounts. Interest-bearing deposits increased $27.8 million, or 0.3%, during 2022, primarily due to growth in consumer and commercial interest

checking accounts, consumer savings accounts and all categories of certificates of deposits, partially offset by declines in all categories of MMDA as well as public interest checking accounts.

The maturities of time deposits that exceed the FDIC insurance limit of $250 thousand at December 31, 2022 are as follows ($ in thousands):


Three months or less	$	40,351
Over three months through six months		45,031
Over six months through twelve months		103,370
Over twelve months		58,479
Total time deposits in excess of FDIC insurance limit	$	247,231

Borrowings

Trustmark uses short-term borrowings, such as federal funds purchased, securities sold under repurchase agreements and short-term FHLB advances, to fund growth of earning assets in excess of deposit growth. See the section captioned “Liquidity” for further discussion of the components of Trustmark’s excess funding capacity.

Federal funds purchased and repurchase agreements totaled $449.3 million at December 31, 2022 compared to $238.6 million at December 31, 2021, an increase of $210.8 million, or 88.3%. At December 31, 2022 and 2021, $66.3 million and $238.6 million, respectively, represented customer related transactions, such as commercial sweep repurchase balances. Trustmark had $383.0 million of upstream federal funds purchased at December 31, 2022, compared to none at December 31, 2021. The increase in the upstream federal funds purchased during 2022 was the result of changes in funding needs to support the strong loan growth.

Other borrowings totaled $1.051 billion at December 31, 2022, an increase of $959.9 million when compared with $91.0 million at December 31, 2021, primarily due to an increase in outstanding short-term FHLB advances with the FHLB of Dallas as a funding source for loan growth during 2022.

Benefit Plans

Defined Benefit Plans

As disclosed in Note 14 – Defined Benefit and Other Postretirement Benefits included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, Trustmark maintains a noncontributory tax-qualified defined benefit pension plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the Continuing Plan) to satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions.

At December 31, 2022, the fair value of the Continuing Plan’s assets totaled $2.9 million and was exceeded by the projected benefit obligation of $6.9 million by $4.0 million. Net periodic benefit cost equaled $410 thousand in 2022, compared to $1.1 million in 2021 and $786 thousand in 2020.

The fair value of plan assets is determined utilizing current market quotes, while the benefit obligation and periodic benefit costs are determined utilizing actuarial methodology with certain weighted-average assumptions. For 2022, 2021 and 2020, the process used to select the discount rate assumption under FASB ASC Topic 715, "Compensation-Retirement Benefits," takes into account the benefit cash flow and the segmented yields on high-quality corporate bonds that would be available to provide for the payment of the benefit cash flow. Assumptions, which have been chosen to represent the estimate of a particular event as required by GAAP, have been reviewed and approved by Management based on recommendations from its actuaries.

The range of potential contributions to the Continuing Plan is determined annually by the Continuing Plan’s actuary in accordance with applicable IRS rules and regulations. Trustmark’s policy is to fund amounts that are sufficient to satisfy the annual minimum funding requirements and do not exceed the maximum that is deductible for federal income tax purposes. The actual amount of the contribution is determined annually based on the Continuing Plan’s funded status and return on plan assets as of the measurement date, which is December 31. For the plan year ending December 31, 2022, Trustmark’s minimum required contribution to the Continuing Plan was $170 thousand; however, Trustmark contributed $332 thousand, $162 thousand in excess of the minimum required. For the plan year ending December 31, 2023, Trustmark’s minimum required contribution to the Continuing Plan is expected to be $195 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout 2023 to determine any additional funding requirements by the plan’s measurement date.

Supplemental Retirement Plans

As disclosed in Note 14 – Defined Benefit and Other Postretirement Benefits included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of small nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger dates.

At December 31, 2022, the accrued benefit obligation for the supplemental retirement plans equaled $43.2 million, while the net periodic benefit cost equaled $2.4 million in 2022, $2.5 million in 2021 and $2.8 million in 2020. The net periodic benefit cost and projected benefit obligation are determined using actuarial assumptions as of the plans’ measurement date. The process used to select the discount rate assumption under FASB ASC Topic 715 takes into account the benefit cash flow and the segmented yields on high-quality corporate bonds that would be available to provide for the payment of the benefit cash flow. At December 31, 2022, unrecognized actuarial losses and unrecognized prior service costs continue to be amortized over future service periods.

Legal Environment

Off-Balance Sheet Arrangements

Information required in this section is set forth under the heading “Lending Related” of Note 16 – Commitments and Contingencies in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Capital Resources and Liquidity

At December 31, 2022, Trustmark’s total shareholders’ equity was $1.492 billion, a decrease of $249.0 million, or 14.3%, when compared to December 31, 2021. The decrease in shareholders’ equity during 2022 was primarily as a result of a decrease in the fair market value of available for sale securities, net of tax, of $172.1 million, common stock dividends of $56.7 million, unrealized net holding losses on securities transferred from available for sale to held to maturity, net of tax, of $64.5 million and common stock repurchases of $24.6 million, partially offset by net income of $71.9 million. Trustmark utilizes a capital model in order to provide Management with a monthly tool for analyzing changes in its strategic capital ratios. This allows Management to hold sufficient capital to provide for growth opportunities and protect the balance sheet against sudden adverse market conditions, while maintaining an attractive return on equity to shareholders.

Regulatory Capital

Trustmark and TNB are subject to minimum risk-based capital and leverage capital requirements, as described in the section captioned “Capital Adequacy” included in Part I. Item 1. – Business of this report, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include a capital conservation buffer of 2.500% at December 31, 2022 and 2021. AOCI is not included in computing regulatory capital. Trustmark has elected the five-year phase-in transition period (through December 31, 2024) related to adopting FASB ASU 2016-13 for regulatory capital purposes. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. At December 31, 2022, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met applicable regulatory guidelines to be considered well-capitalized at December 31, 2022. To be categorized in this manner, Trustmark and TNB maintained minimum common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios, and were not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by their primary federal regulators to meet and maintain a specific capital level for any capital measures. There are no significant conditions or events that have occurred since December 31, 2022, which Management believes have affected Trustmark’s or TNB’s present classification.

During the fourth quarter of 2020, Trustmark enhanced its capital structure with the issuance of $125.0 million of subordinated notes. The subordinated notes were sold at an underwriting discount of 1.2%, resulting in net proceeds to Trustmark of $123.5 million before deducting offering expenses. At December 31, 2022 and 2021,the carrying amount of the subordinated notes was $123.3 million and

$123.0 million, respectively. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. For regulatory capital purposes, the subordinated notes qualified as Tier 2 capital for Trustmark at December 31, 2022 and 2021. Trustmark may utilize the full carrying value of the subordinated notes as Tier 2 capital until December 1, 2025 (five years prior to maturity). Beginning December 1, 2025, the subordinated notes will phase out of Tier 2 capital 20.0% each year until maturity.

In 2006, Trustmark enhanced its capital structure with the issuance of trust preferred securities. For regulatory capital purposes, the trust preferred securities qualified as Tier 1 capital at December 31, 2022 and 2021. Trustmark intends to continue to utilize $60.0 million in trust preferred securities issued by the Trust as Tier 1 capital up to the regulatory limit, as permitted by the grandfather provision in the Dodd-Frank Act and the Basel III Final Rule.

Refer to the section captioned “Regulatory Capital” included in Note 17 – Shareholders’ Equity in Part II. Item 8. – Financial Statements and Supplementary Data of this report for an illustration of Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at December 31, 2022 and 2021.

Dividends on Common Stock

Dividends per common share for each of the years ended December 31, 2022, 2021 and 2020 were $0.92. Trustmark’s dividend payout ratio for 2022, 2021 and 2020 was 78.63%, 39.15%, and 36.51%, respectively. The increase in the dividend payout ratio for 2022 was principally due to the $100.8 million of litigation settlement expense recorded during the fourth quarter of 2022. Since Trustmark is a holding company and does not conduct operations, its primary source of liquidity are dividends paid from TNB and borrowings from outside sources. Approval by TNB’s regulators is required if the total of all dividends declared in any calendar year exceeds the total of its net income for that year combined with its retained net income of the preceding two years. In 2023, TNB will have available approximately $96.9 million plus its net income for that year to pay as dividends to Trustmark. The actual amount of any dividends declared in 2023 by Trustmark will be determined by Trustmark’s Board of Directors. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable of March 15, 2023, to shareholders of record on March 1, 2023.

Stock Repurchase Plan

From time to time, Trustmark’s Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow Trustmark to proactively manage its capital position and return excess capital to shareholders. Shares purchased also provide Trustmark with shares of common stock necessary to satisfy obligations related to stock compensation awards. Under the stock repurchase plan effective April 1, 2019 through March 30, 2020, Trustmark repurchased approximately 1.5 million shares its common stock valued at $47.2 million. Under the stock repurchase plan effective April 1, 2020 through December 31, 2021, Trustmark repurchased approximately 1.9 million shares of its common stock valued at $61.8 million. Under the stock repurchase plan effective January 1, 2022 through December 31, 2022, Trustmark repurchased approximately 789 thousand shares of its common stock valued at $24.6 million. On December 6, 2022, the Board of Directors of Trustmark authorized a new stock repurchase program, effective January 1, 2023, under which $50.0 million of Trustmark’s outstanding common stock may be acquired through December 31, 2023. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions. No shares have been repurchased under this stock repurchase program.

Liquidity

Liquidity is the ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations, including demand for loans and deposit withdrawals, funding operating costs and other corporate purposes. Consistent cash flows from operations and adequate capital provide internally generated liquidity. Furthermore, Management maintains funding capacity from a variety of external sources to meet daily funding needs, such as those required to meet deposit withdrawals, loan disbursements and security settlements. Liquidity strategy also includes the use of wholesale funding sources to provide for the seasonal fluctuations of deposit and loan demand and the cyclical fluctuations of the economy that impact the availability of funds. Management keeps excess funding capacity available to meet potential demands associated with adverse circumstances.

The asset side of the balance sheet provides liquidity primarily through maturities and cash flows from loans and securities as well as the ability to sell certain loans and securities while the liability portion of the balance sheet provides liquidity primarily through noninterest and interest-bearing deposits. Trustmark utilizes federal funds purchased, FHLB advances, securities sold under repurchase agreements as well as the Discount Window and, on a limited basis as discussed below, brokered deposits to provide additional liquidity. Access to these additional sources represents Trustmark’s incremental borrowing capacity.

Trustmark’s liquidity position is continuously monitored and adjustments are made to manage the balance as deemed appropriate. Liquidity risk management is an important element to Trustmark’s asset/liability management process. Trustmark regularly models liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions or other

significant occurrences as deemed appropriate by Management. These scenarios are incorporated into Trustmark’s contingency funding plan, which provides the basis for the identification of its liquidity needs.

Deposit accounts represent Trustmark’s largest funding source. Average deposits totaled to $14.772 billion for 2022 and represented approximately 84.5% of average liabilities and shareholders’ equity, compared to average deposits of $14.538 billion, which represented 85.2% of average liabilities and shareholders’ equity for 2021.

Trustmark had $434.0 million held in an interest-bearing account at the FRBA at December 31, 2022, compared to $2.064 billion at December 31, 2021. The decrease in Trustmark's balance held at the FRBA was principally due to Trustmark's deployment of its excess cash to purchase investment securities and fund loan growth.

Trustmark utilizes a limited amount of brokered deposits to supplement other wholesale funding sources. At December 31, 2022, brokered sweep MMDA deposits totaled $15.1 million compared to $29.6 million at December 31, 2021.

At December 31, 2022, Trustmark had $383.0 million of upstream federal funds purchased compared to no upstream federal funds purchased at December 31, 2021. Trustmark maintains adequate federal funds lines to provide sufficient short-term liquidity.

Trustmark maintains a relationship with the FHLB of Dallas, which provided $975.0 million of outstanding short-term advances and no long-term advances at December 31, 2022, compared to no short-term or long-term FHLB advances outstanding at December 31, 2021. Trustmark had no letters of credit outstanding with the FHLB of Dallas at December 31, 2022, and 2021. Under the existing borrowing agreement, Trustmark had sufficient qualifying collateral to increase FHLB advances with the FHLB of Dallas by $3.034 billion at December 31, 2022.

In addition, at December 31, 2022, Trustmark had no short-term and $78 thousand in long-term FHLB advances outstanding with the FHLB of Atlanta, which were acquired in the BancTrust merger, compared to no short-term and $97 thousand in long-term FHLB advances outstanding at December 31, 2021. Trustmark has non-member status and thus no additional borrowing capacity with the FHLB of Atlanta.

Additionally, Trustmark has the ability to leverage its unencumbered investment securities as collateral. At December 31, 2022, Trustmark had approximately $797.0 million available in unencumbered Treasury and agency securities compared to $751.0 million at December 31, 2021.

Another borrowing source is the Discount Window. At December 31, 2022, Trustmark had approximately $1.345 billion available in collateral capacity at the Discount Window primarily from pledges of commercial and industrial LHFI, compared with $876.8 million at December 31, 2021.

Additionally, on March 15, 2020, in response to the COVID-19 pandemic, the FRB reduced reserve requirements for insured depository institutions to zero percent, which increased TNB’s available liquidity.

During the fourth quarter of 2020, Trustmark agreed to issue and sell $125.0 million aggregate principal amount of its 3.625% fixed-to-floating rate subordinated notes. The subordinated notes were sold at an underwriting discount of 1.2%, resulting in net proceeds to Trustmark of $123.5 million before deducting offering expenses. At December 31, 2022 and 2021,the carrying amount of the subordinated notes was $123.3 million and $123.0 million, respectively. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. The subordinated notes are unsecured obligations and are subordinated in right of payment to all of Trustmark’s existing and future senior indebtedness, whether secured or unsecured. The subordinated notes are obligations of Trustmark only and are not obligations of, and are not guaranteed by, any of its subsidiaries, including TNB. Trustmark intends to use the net proceeds for general corporate purposes.

During 2006, Trustmark completed a private placement of $60.0 million of trust preferred securities through a newly formed Delaware trust affiliate, the Trust. The trust preferred securities mature September 30, 2036 and are redeemable at Trustmark’s option. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase $61.9 million in aggregate principal amount of Trustmark’s junior subordinated debentures.

The Board of Directors of Trustmark currently has the authority to issue up to 20.0 million preferred shares with no par value. The ability to issue preferred shares in the future will provide Trustmark with additional financial and management flexibility for general corporate and acquisition purposes. At December 31, 2022, Trustmark had no shares of preferred stock issued and outstanding.

Management believes that Trustmark has sufficient liquidity and capital resources to meet presently known cash flow requirements arising from ongoing business transactions. As of December 31, 2022, Management is not aware of any events that are reasonably

likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, Management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on Trustmark.

In the ordinary course of business, Trustmark has entered into contractual obligation and have made other commitments to make future payments. Please refer to the accompanying notes to the consolidated financial statements included in Part II. Item 8. – Financial Statements and Supplementary Data of this report for the expected timing of such payments as of December 31, 2022. These include payments related to (i) short-term and long-term borrowings (Note 11 – Borrowings), (ii) operating and finance leases (Note 9 – Leases), (iii) time deposits with stated maturity dates (Note 10 – Deposits) and (iv) commitments to extend credit and standby letters of credit (Note 16 – Commitments and Contingencies).

Asset/Liability Management

Overview

Market risk reflects the potential risk of loss arising from adverse changes in interest rates and market prices. Trustmark has risk management policies to monitor and limit exposure to market risk. Trustmark’s primary market risk is interest rate risk created by core banking activities. Interest rate risk is the potential variability of the income generated by Trustmark’s financial products or services, which results from changes in various market interest rates. Market rate changes may take the form of absolute shifts, variances in the relationships between different rates and changes in the shape or slope of the interest rate term structure.

On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, confirmed that the publication of most LIBOR term rates will end on June 20, 2023 (excluding one-week U.S. LIBOR and two-month U.S. LIBOR, the publication of which ended on December 31, 2021). Additionally, on March 15, 2022. the Adjustable Interest Rate (LIBOR) Act was signed into law as part of the Consolidated Appropriations Act, 2022. The Adjustable Interest Rate (LIBOR) Act establishes a nationwide process for replacing LIBOR in financial contracts that mature after the cessation of the overnight, one-, three-, six- and 12-month U.S. LIBOR tenors on June 30, 2023 and that do not provide for an effective means to replace LIBOR upon its cessation. For contracts in which a party has the discretion to identify a replacement rate, the Adjustable Interest Rate (LIBOR) Act also provides a safe harbor to parties if they choose the SOFR-based benchmark replacement rate to be identified by the FRB. Trustmark has a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Trustmark cannot predict what the ultimate impact of the transition from LIBOR will be; however, failure to adequately manage the transition could have a material adverse effect on Trustmark’s business, financial condition and results of operations. For additional information regarding the transition from LIBOR and Trustmark’s management of this transition, please see the respective risk factor included in Part I. Item 1A. – Risk Factors of this report.

Management continually develops and applies cost-effective strategies to manage these risks. Management’s Asset/Liability Committee sets the day-to-day operating guidelines, approves strategies affecting net interest income and coordinates activities within policy limits established by the Board of Directors of Trustmark. A key objective of the asset/liability management program is to quantify, monitor and manage interest rate risk and to assist Management in maintaining stability in the net interest margin under varying interest rate environments.

Derivatives

Trustmark uses financial derivatives for management of interest rate risk. Management’s Asset/Liability Committee, in its oversight role for the management of interest rate risk, approves the use of derivatives in balance sheet hedging strategies. The most common derivatives employed by Trustmark are interest rate lock commitments, forward contracts (both futures contracts and options on futures contracts), interest rate swaps, interest rate caps and interest rate floors. As a general matter, the values of these instruments are designed to be inversely related to the values of the assets that they hedge (i.e., if the value of the hedged asset falls, the value of the related hedge rises). In addition, Trustmark has entered into derivatives contracts as counterparty to one or more customers in connection with loans extended to those customers. These transactions are designed to hedge interest rate, currency or other exposures of the customers and are not entered into by Trustmark for speculative purposes. Increased federal regulation of the derivatives markets may increase the cost to Trustmark to administer derivatives programs.

Derivatives Designated as Hedging Instruments

During the third quarter of 2022, Trustmark initiated a cash flow hedging program. Trustmark's objectives in initiating this hedging program are to add stability to interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Trustmark making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Trustmark uses such derivatives to hedge

the variable cash flows associated with existing and anticipated variable-rate loan assets. At December 31, 2022, the aggregate notional value of Trustmark's interest rate swaps designated as cash flow hedges totaled $825.0 million.

Trustmark records any gains or losses on these cash flow hedges in AOCI. As interest payments are received on Trustmark's variable-rate assets, amounts reported in AOCI are reclassified into interest and fees on LHFS and LHFI in the accompanying consolidated statements of income during the same period. For the year ended December 31, 2022, Trustmark reclassified a loss, net of tax, of $345 thousand into interest and fees on LHFS and LHFI. During the next twelve months, Trustmark estimates that $13.7 million will be reclassified as a reduction to interest and fees on LHFS and LHFI. This amount could differ due to changes in interest rates, hedge de-designations or the addition of other hedges.

Derivatives Not Designated as Hedging Instruments

As part of Trustmark’s risk management strategy in the mortgage banking business, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. Trustmark’s obligations under forward contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. The gross notional amount of Trustmark’s off-balance sheet obligations under these derivative instruments totaled $165.4 million at December 31, 2022, with a positive valuation adjustment of $325 thousand, compared to $378.6 million, with a positive valuation adjustment of $1.8 million at December 31, 2021.

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that economically hedges changes in fair value of the MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under GAAP. The total notional amount of these derivative instruments was $277.0 million at December 31, 2022 compared to $409.5 million at December 31, 2021. These exchange-traded derivative instruments are accounted for at fair value with changes in the fair value recorded as noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net negative ineffectiveness of $4.1 million for the year ended December 31, 2022, compared to a net positive ineffectiveness of $2.5 million for the year ended December 31, 2021 and a net positive ineffectiveness of $7.8 million for the year ended December 31, 2020.

Trustmark offers certain interest rate derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk under loans they have entered into with TNB. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships under GAAP and are, therefore, carried on Trustmark’s financial statements at fair value with the change in fair value recorded as noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As a result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets. At December 31, 2022, Trustmark had interest rate swaps with an aggregate notional amount of $1.391 billion related to this program, compared to $1.225 billion at December 31, 2021.

Credit-Risk-Related Contingent Features

Trustmark has agreements with its financial institution counterparties that contain provisions where if Trustmark defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Trustmark could also be deemed to be in default on its derivatives obligations.

At December 31, 2022, there was no termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements compared to $655 thousand at December 31, 2021. At December 31, 2022 and 2021, Trustmark had posted collateral of $740 thousand and $850 thousand, respectively, against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at December 31, 2022, it could have been required to settle its obligations under the agreements at the termination value (which is expected to approximate fair market value).

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third-party default on the underlying swap. At December 31, 2022, Trustmark had entered into five risk participation agreements as a beneficiary with and aggregate notional amount of $50.2 million compared to six risk participation agreements as a beneficiary with an aggregate notional amount of $52.0 million at December 31, 2021. At December 31, 2022, Trustmark had entered into twenty-nine risk participation agreements as a guarantor with an aggregate notional amount of $235.8 million, compared to twenty-four risk participation agreements as a guarantor with an aggregate notional amount of $173.5 million at December 31, 2021. The aggregate fair values of these risk participation agreements were immaterial at December 31, 2022 and 2021.

Trustmark’s participation in the derivatives markets is subject to increased federal regulation of these markets. Trustmark believes that it may continue to use financial derivatives to manage interest rate risk and also to offer derivatives products to certain qualified commercial lending clients in compliance with the Volcker Rule. However, the increased federal regulation of the derivatives markets has increased the cost to Trustmark of administering its derivatives programs. Some of these costs (particularly compliance costs related to the Volcker Rule and other federal regulations) are expected to recur in the future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market/Interest Rate Risk Management

The primary purpose in managing interest rate risk is to invest capital effectively and preserve the value created by the core banking business. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize net interest income performance under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.

Financial simulation models are the primary tools used by Management’s Asset/Liability Committee to measure interest rate exposure. Using a wide range of scenarios, Management is provided with extensive information on the potential impact on net interest income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Trustmark’s balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of Trustmark’s balance sheet, resulting from both strategic plans and customer behavior. In addition, the model incorporates Management’s assumptions and expectations regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates.


	Estimated % Change
	in Net Interest Income
Change in Interest Rates	2022			2021
+200 basis points		3.3	%		20.1	%
+100 basis points		1.7	%		9.7	%
-100 basis points		-1.8	%		-6.7	%

Management cannot provide any assurance about the actual effect of changes in interest rates on net interest income. The estimates provided do not include the effects of possible strategic changes in the balances of various assets and liabilities throughout 2022 or additional actions Trustmark could undertake in response to changes in interest rates. Management will continue to prudently manage the balance sheet in an effort to control interest rate risk and maintain profitability over the long term.

Another component of interest rate risk management is measuring the economic value-at-risk for a given change in market interest rates. The economic value-at-risk may indicate risks associated with longer-term balance sheet items that may not affect net interest income at risk over shorter time periods. Trustmark uses computer-modeling techniques to determine the present value of all asset and liability cash flows (both on- and off-balance sheet), adjusted for prepayment expectations, using a market discount rate. The economic value of equity (EVE), also known as net portfolio value, is defined as the difference between the present value of asset cash flows and the present value of liability cash flows. The resulting change in EVE in different market rate environments, from the base case scenario, is the amount of EVE at risk from those rate environments.

The following table summarizes the effect that various interest rate shifts would have on net portfolio value at December 31, 2022 and 2021.


	Estimated % Change
	in Net Portfolio Value
Change in Interest Rates	2022			2021
+200 basis points		-1.6	%		10.1	%
+100 basis points		-0.6	%		5.9	%

Trustmark determines the fair value of the MSR using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income and other ancillary income such as late fees. Management reviews all significant assumptions quarterly. Mortgage loan prepayment speeds, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change.

At December 31, 2022, the MSR fair value was $129.7 million, compared to $87.7 million at December 31, 2021. The impact on the MSR fair value of a 10% adverse change in prepayment speeds or a 100 basis point increase in discount rates at December 31, 2022 would be a decline in fair value of approximately $4.5 million and $5.4 million, respectively, compared to a decline in fair value of approximately $4.4 million and $3.2 million, respectively, at December 31, 2021. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of Trustmark Corporation

Jackson, Mississippi

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Trustmark Corporation and subsidiaries (the "Corporation") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). We also have audited the Corporation’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Allowance for Credit Losses, LHFI Reasonable and Supportable Forecasts

As described in Note 1 - Significant Accounting Policies and Note 4 – LHFI and Allowance for Credit Losses, LHFI to the consolidated financial statements, the Corporation uses a third-party software application to calculate the quantitative portion of the allowance for credit losses which employs a discounted cash flow (DCF) or weighted average remaining maturity (WARM) method by loan pool. A reasonable and supportable forecast is developed through a Loss Driver Analysis (LDA) by loan class. The LDA uses charge off data from Trustmark National Bank’s Federal Financial Institutions Examination Council (FFIEC) reports to construct a periodic default rate (PDR). The PDR is decomposed into a probability of default (PD). Regressions are run using the data for various macroeconomic variables in order to determine which correlate to the Corporation’s losses. These variables are then incorporated into the application to calculate a quarterly PD using a third-party baseline forecast. Loss given default (LGD) is derived from a method that traces the relationship between LGD and PD over a period of time and projects LGD based on the PD forecast. This model approach is applicable to all pools within the construction, land development and other land, other secured by 1-4 family residential properties, secured by nonfarm, nonresidential properties and other real estate secured loan classes, as well as all other consumer and other loans pools.

The Corporation determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools in which models were developed through the LDA. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Trustmark uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans.

Estimating reasonable and supportable forecasts requires significant judgment and could have a material effect on the Corporation’s financial statements. Management leverages economic projections from an independent third party for its forecasts over the forecast period. We identified auditing the reasonableness of forecasts, including the LDA, as a critical audit matter as it involves especially subjective auditor judgment and increased audit effort, including the involvement of specialists.

The primary audit procedures we performed to address this critical audit matter included the following:

Tested the effectiveness of controls over the LDA and reasonable and supportable forecast including:

•

Relevance and reliability of the underlying data including FFIEC data

•

Model validation performed by a third-party specialist

•

Reasonableness of significant assumptions and judgments applied in the forecast and results of the calculation

Performed substantive testing over the LDA and reasonable and supportable forecast including:

•

Tested relevance and reliability of underlying data including FFIEC data

•

Utilized the work of internal specialists to assist in evaluating the appropriateness and mathematical accuracy of the LDA, methodologies applied, and the relevance and reliability of data used in the development of the forecast models

•

Evaluated the reasonableness of significant assumptions and judgments

We have served as the Corporation’s auditor since 2015, which is the year the engagement letter was signed for the audit of the 2016 financial statements.

/s/ Crowe LLP

Atlanta, Georgia

February 16, 2023

Trustmark Corporation and Subsidiaries

Consolidated Balance Sheets

($ in thousands)


	December 31,
	2022			2021
Assets
Cash and due from banks	$	734,787		$	2,266,829
Federal funds sold and securities purchased under reverse repurchase agreements		4,000			—
Securities available for sale, at fair value (amortized cost: $2,270,709-2022; $3,256,289-2021; allowance for credit losses (ACL): $0)		2,024,082			3,238,877
Securities held to maturity, net of ACL of $0 (fair value: $1,406,589-2022; $353,511-2021)		1,494,514			342,537
Paycheck Protection Program (PPP) loans		—			33,336
Loans held for sale (LHFS)		135,226			275,706
Loans held for investment (LHFI)		12,204,039			10,247,829
Less ACL, LHFI		120,214			99,457
Net LHFI		12,083,825			10,148,372
Premises and equipment, net		212,365			205,644
Mortgage servicing rights (MSR)		129,677			87,687
Goodwill		384,237			384,237
Identifiable intangible assets, net		3,640			5,074
Other real estate, net		1,986			4,557
Operating lease right-of-use assets		36,301			34,603
Other assets		770,838			568,177
Total Assets	$	18,015,478		$	17,595,636

Liabilities
Deposits:
Noninterest-bearing	$	4,093,771		$	4,771,065
Interest-bearing		10,343,877			10,316,095
Total deposits		14,437,648			15,087,160
Federal funds purchased and securities sold under repurchase agreements		449,331			238,577
Other borrowings		1,050,938			91,025
Subordinated notes		123,262			123,042
Junior subordinated debt securities		61,856			61,856
ACL on off-balance sheet credit exposures		36,838			35,623
Operating lease liabilities		38,932			36,468
Other liabilities		324,405			180,574
Total Liabilities		16,523,210			15,854,325

Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares
Issued and outstanding: 60,977,686 shares - 2022; 61,648,679 shares - 2021		12,705			12,845
Capital surplus		154,645			175,913
Retained earnings		1,600,321			1,585,113
Accumulated other comprehensive income (loss), net of tax		(275,403	)		(32,560	)
Total Shareholders' Equity		1,492,268			1,741,311
Total Liabilities and Shareholders' Equity	$	18,015,478		$	17,595,636

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Income

($ in thousands, except per share data)


	Years Ended December 31,
	2022		2021			2020
Interest Income
Interest and fees on LHFS & LHFI	$	472,990	$	363,772		$	390,803
Interest and fees on PPP loans		639		36,726			26,643
Interest on securities:
Taxable		59,717		38,698			48,250
Tax exempt		333		548			1,079
Interest on federal funds sold and securities purchased under reverse repurchase agreements		74		—			1
Other interest income		8,080		2,767			1,559
Total Interest Income		541,833		442,511			468,335
Interest Expense
Interest on deposits		29,069		16,945			37,487
Interest on federal funds purchased and securities sold under repurchase agreements		6,127		232			755
Other interest expense		11,929		6,983			3,556
Total Interest Expense		47,125		24,160			41,798
Net Interest Income		494,708		418,351			426,537
Provision for credit losses (PCL), LHFI		21,677		(21,499	)		36,113
PCL, off-balance sheet credit exposures (1)		1,215		(2,949	)		8,934
Net Interest Income After PCL		471,816		442,799			381,490
Noninterest Income
Service charges on deposit accounts		42,157		33,246			32,289
Bank card and other fees		36,105		34,662			31,022
Mortgage banking, net		28,306		63,750			125,822
Insurance commissions		53,721		48,511			45,176
Wealth management		35,013		35,190			31,625
Other, net		9,842		6,551			8,659
Total Noninterest Income		205,144		221,910			274,593
Noninterest Expense (1)
Salaries and employee benefits		287,440		284,158			272,257
Services and fees		101,545		89,463			83,816
Net occupancy - premises		29,264		27,043			26,489
Equipment expense		24,448		24,337			23,277
Litigation settlement expense		100,750		—			—
Other expense (2)		59,766		64,295			60,462
Total Noninterest Expense		603,213		489,296			466,301
Income Before Income Taxes		73,747		175,413			189,782
Income taxes		1,860		28,048			29,757
Net Income	$	71,887	$	147,365		$	160,025

Earnings Per Share
Basic	$	1.17	$	2.35		$	2.52
Diluted	$	1.17	$	2.34		$	2.51

(1)

(2)

During the first quarter of 2022, Trustmark reclassified its other real estate expense, net to other expense. The prior periods have been reclassified accordingly.

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

($ in thousands)


	Years Ended December 31,
	2022			2021			2020
Net income per consolidated statements of income	$	71,887		$	147,365		$	160,025
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available for sale securities and transferred securities:
Net unrealized holding gains (losses) arising during the period		(172,143	)		(37,090	)		22,965
Change in net unrealized holding loss on securities transferred to held to maturity		(64,525	)		1,985			2,383
Pension and other postretirement benefit plans:
Change in the actuarial loss of pension and other postretirement benefit plans		8,094			2,134			(3,846	)
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		83			84			112
Recognized net loss due to lump sum settlements		—			137			89
Change in net actuarial loss		817			1,241			846
Derivatives:
Change in the accumulated gain (loss) on effective cash flow hedge derivatives		(15,514	)		—			—
Reclassification adjustment for (gain) loss realized in net income		345			—			—
Other comprehensive income (loss), net of tax		(242,843	)		(31,509	)		22,549
Comprehensive income	$	(170,956	)	$	115,856		$	182,574

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

($ in thousands, except per share data)


													Accumulated
													Other
	Common Stock												Comprehensive
	Shares						Capital			Retained			Income
	Outstanding			Amount			Surplus			Earnings			(Loss)			Total
Balance, January 1, 2020		64,200,111		$	13,376		$	256,400		$	1,414,526		$	(23,600	)	$	1,660,702
FASB ASU 2016-13 adoption adjustment		—			—			—			(19,949	)		—			(19,949	)
Net income per consolidated statements of income		—			—			—			160,025			—			160,025
Other comprehensive income (loss), net of tax		—			—			—			—			22,549			22,549
Cash dividends paid on common stock ($0.92 per share)		—			—			—			(58,769	)		—			(58,769	)
Shares withheld to pay taxes, long-term incentive plan		111,373			23			(1,123	)		—			—			(1,100	)
Repurchase and retirement of common stock		(886,958	)		(184	)		(27,354	)		—			—			(27,538	)
Compensation expense, long-term incentive plan		—			—			5,197			—			—			5,197
Balance, December 31, 2020		63,424,526			13,215			233,120			1,495,833			(1,051	)		1,741,117
Net income per consolidated statements of income		—			—			—			147,365			—			147,365
Other comprehensive income (loss), net of tax		—			—			—			—			(31,509	)		(31,509	)
Cash dividends paid on common stock ($0.92 per share)		—			—			—			(58,085	)		—			(58,085	)
Shares withheld to pay taxes, long-term incentive plan		133,907			28			(1,407	)		—			—			(1,379	)
Repurchase and retirement of common stock		(1,909,754	)		(398	)		(61,401	)		—			—			(61,799	)
Compensation expense, long-term incentive plan		—			—			5,601			—			—			5,601
Balance, December 31, 2021		61,648,679			12,845			175,913			1,585,113			(32,560	)		1,741,311
Net income per consolidated statements of income		—			—			—			71,887			—			71,887
Other comprehensive income (loss), net of tax		—			—			—			—			(242,843	)		(242,843	)
Cash dividends paid on common stock ($0.92 per share)		—			—			—			(56,679	)		—			(56,679	)
Shares withheld to pay taxes, long-term incentive plan		118,398			24			(1,711	)		—			—			(1,687	)
Repurchase and retirement of common stock		(789,391	)		(164	)		(24,440	)		—			—			(24,604	)
Compensation expense, long-term incentive plan		—			—			4,883			—			—			4,883
Balance, December 31, 2022		60,977,686		$	12,705		$	154,645		$	1,600,321		$	(275,403	)	$	1,492,268

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Cash Flows

($ in thousands)


	Years Ended December 31,
	2022			2021			2020
Operating Activities
Net income per consolidated statements of income	$	71,887		$	147,365		$	160,025
Adjustments to reconcile net income to net cash provided by operating activities:
PCL		22,892			(24,448	)		45,047
Depreciation and amortization		39,882			45,813			41,325
Net amortization of securities		11,206			20,310			13,247
Gains on sales of loans, net		(24,914	)		(70,954	)		(94,986	)
Compensation expense, long-term incentive plan		4,883			5,601			5,197
Deferred income tax provision		(16,800	)		20,115			(19,800	)
Proceeds from sales of LHFS		1,267,967			2,357,108			2,627,122
Purchases and originations of LHFS		(1,116,232	)		(2,171,605	)		(2,668,642	)
Originations of MSR		(17,843	)		(28,125	)		(29,805	)
Earnings on bank-owned life insurance		(4,875	)		(4,853	)		(5,099	)
Net change in other assets		(51,921	)		42,400			(49,653	)
Net change in other liabilities		167,743			19,645			13,669
Other operating activities, net		(57,359	)		(9,601	)		27,699
Net cash from operating activities		296,516			348,771			65,346

Investing Activities
Proceeds from maturities, prepayments and calls of securities held to maturity		136,135			197,091			201,888
Proceeds from maturities, prepayments and calls of securities available for sale		435,386			835,200			680,294
Purchases of securities held to maturity		(604,938	)		—			—
Purchases of securities available for sale		(230,527	)		(2,150,935	)		(1,051,014	)
Net proceeds from bank-owned life insurance		288			1,772			3,280
Net change in federal funds sold and securities purchased under reverse repurchase agreements		(4,000	)		50			(50	)
Net change in member bank stock		(39,329	)		(1,220	)		269
Net change in LHFI and PPP loans		(1,925,327	)		(197,800	)		(1,027,924	)
Proceeds from sales of PPP loans		—			353,287			—
Purchases of premises and equipment		(26,624	)		(27,360	)		(22,577	)
Proceeds from sales of premises and equipment		5,107			961			2,803
Proceeds from sales of other real estate		3,136			5,064			17,343
Purchases of software		(7,388	)		(3,836	)		(8,252	)
Investments in tax credit and other partnerships		(22,321	)		(17,288	)		(5,844	)
Purchase of insurance book of business		—			—			(3,097	)
Net cash used in business acquisition		—			—			(4,834	)
Net cash from investing activities		(2,280,402	)		(1,005,014	)		(1,217,715	)

Financing Activities
Net change in deposits		(649,512	)		1,038,396			2,803,207
Net change in federal funds purchased and securities sold under repurchase agreements		210,754			74,058			(91,501	)
Net change in other borrowings		974,981			(19,189	)		473
Payments under finance lease obligations		(1,409	)		(1,434	)		(1,715	)
Proceeds from subordinated notes		—			—			122,900
Common stock dividends		(56,679	)		(58,085	)		(58,769	)
Repurchase and retirement of common stock		(24,604	)		(61,799	)		(27,538	)
Shares withheld to pay taxes, long-term incentive plan		(1,687	)		(1,379	)		(1,100	)
Net cash from financing activities		451,844			970,568			2,745,957

Net change in cash and cash equivalents		(1,532,042	)		314,325			1,593,588
Cash and cash equivalents at beginning of year		2,266,829			1,952,504			358,916
Cash and cash equivalents at end of year	$	734,787		$	2,266,829		$	1,952,504

See notes to consolidated financial statements.

Note 1 – Significant Accounting Policies

Business

Trustmark Corporation (Trustmark) is a bank holding company headquartered in Jackson, Mississippi. Through its subsidiaries, Trustmark operates as a financial services organization providing banking and financial solutions to corporate institutions and individual customers through offices in Alabama (includes the Georgia Loan Production Office), Florida, Mississippi, Tennessee and Texas.

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of Trustmark and all other entities in which Trustmark has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with these accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expense during the reporting periods and the related disclosures. Although Management’s estimates contemplate current conditions and how they are expected to change in the future, it is reasonably possible that in 2023 actual conditions could vary from those anticipated, which could affect Trustmark’s financial condition and results of operations. Actual results could differ from those estimates.

Securities

Securities are classified as either held to maturity or available for sale. Securities are classified as held to maturity and carried at amortized cost when Management has the positive intent and the ability to hold them until maturity. Securities to be held for indefinite periods of time are classified as available for sale and carried at fair value, with the unrealized holding gains and losses reported as a component of other comprehensive income (loss), net of tax. Securities available for sale are used as part of Trustmark’s interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment rates and other factors. Management determines the appropriate classification of securities at the time of purchase.

The amortized cost of debt securities classified as securities held to maturity or securities available for sale is adjusted for amortization of premiums and accretion of discounts to maturity of the security using the interest method. Such amortization or accretion is included in interest on securities. Realized gains and losses are determined using the specific identification method and are included in noninterest income as securities gains (losses), net.

Securities transferred from the available for sale category to the held to maturity category are recorded at fair value at the date of transfer. Unrealized holding gains or losses associated with the transfer of securities from available for sale to held to maturity are included in the balance of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets. These unrealized holding gains or losses are amortized over the remaining life of the security as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security.

Allowance for Credit Losses (ACL)

Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” was adopted by Trustmark on January 1, 2020. FASB Accounting Standard Codification (ASC) Topic 326 requires a current expected credit losses methodology for estimating allowances for credit losses and applies to all financial instruments carried at amortized cost, including securities held to maturity, and makes targeted improvements to the accounting for credit losses on securities available for sale.

Under FASB ASC Topic 326, the ACL is an estimate measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

Trustmark adopted a zero-credit loss assumption for certain classes of securities. This zero-credit loss assumption applies to debt issuances of the U.S. Treasury and agencies and instrumentalities of the United States government. The reasons behind the adoption of the zero-credit loss assumption were as follows:

•

High credit rating

•

Long history with no credit losses

•

Guaranteed by a sovereign entity

•

Widely recognized as “risk-free rate”

•

Ability and authority to print its own currency

•

Currency is routinely held by central banks, used in international commerce, and commonly viewed as reserve currency

•

Currently under the U.S. Government conservatorship or receivership

Trustmark continuously monitors any changes in economic conditions, credit downgrades, changes to explicit or implicit guarantees granted to certain debt issuers, and any other relevant information that would indicate potential credit deterioration and prompt Trustmark to reconsider its zero-credit loss assumption.

Securities Available for Sale

FASB ASC Subtopic 326-30, “Financial Instruments-Credit Losses-Available-for-Sale Debt Securities,” replaced the concept of other-than-temporarily impaired with the ACL. Unlike securities held to maturity, securities available for sale are evaluated on an individual level and pooling of securities is not allowed.

•

Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.

•

The securities that violate the credit loss triggers above would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

•

If Trustmark determines that a credit loss exists, the credit portion of the allowance will be measured using a discounted cash flow (DCF) analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss Trustmark records will be limited to the amount by which the amortized cost exceeds the fair value.

The DCF analysis utilizes contractual maturities, as well as third-party credit ratings and cumulative default rates published annually by Moody’s Investor Service (Moody’s).

Accrued interest receivable is excluded from the estimate of credit losses for securities available for sale and reported in other assets on the consolidated balance sheets.

Securities Held to Maturity

FASB ASC Subtopic 326-20, “Financial Instruments-Credit Losses-Measured at Amortized Cost,” requires institutions to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risks exist. Trustmark uses several levels of segmentation to measure expected credit losses for its held to maturity securities:

•

The portfolio is segmented into agency and non-agency securities.

•

The non-agency securities are separated into municipal, mortgage, and corporate securities.

•

Each individual segment is categorized by third-party credit ratings.

As discussed above, Trustmark has determined that for certain classes of securities it would be appropriate to assume the expected credit loss to be zero, which include debt issuances of the U.S. Treasury and agencies and instrumentalities of the United States government. This assumption is reviewed and attested to quarterly. Trustmark uses an internally built model to verify the accuracy of third-party provided calculations.

Accrued interest receivable is excluded from the estimate of credit losses for securities held to maturity and included in other assets on the consolidated balance sheets.

Trustmark monitors the credit quality of securities held to maturity on a monthly basis through credit ratings.

Loans Held for Sale (LHFS)

Trustmark's LHFS portfolio consists of mortgage loans purchased from wholesale customers or originated in Trustmark’s General Banking Segment. Trustmark has elected to account for its LHFS under the fair value option permitted by FASB ASC Topic 825, “Financial Instruments,” with interest income on the LHFS reported in interest and fees on LHFS and LHFI. Trustmark reports unrealized gains and losses resulting from changes in the fair value of the LHFS accounted for under the fair value option as noninterest income in mortgage banking, net. LHFS are actively managed and monitored and certain market risks of the loans may be mitigated through the use of derivatives. These derivative instruments are carried at fair value with changes in the fair value reported as noninterest income in mortgage banking, net. Changes in the fair value of the LHFS are largely offset by changes in the fair value of the derivative instruments. Election of the fair value option allows Trustmark to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for its LHFS at the lower of cost or fair value and the derivative instruments at fair value. Realized gains and losses upon ultimate sale of the loans are reported as noninterest income in mortgage banking, net.

Government National Mortgage Association (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. Under FASB ASC Topic 860, “Transfers and Servicing,” 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 LHFS, regardless of whether Trustmark intends to exercise the buy-back option. These loans are reported as LHFS with the offsetting liability being reported as short-term borrowings. The fair value option election does not apply to the GNMA optional repurchase loans which do not meet the requirements under FASB ASC Topic 825 to be accounted for under the fair value option.

Trustmark defers the upfront loan fees and costs related to the LHFS. In general, the LHFS are only retained on Trustmark’s balance sheet for 30 to 45 days before they are pooled and sold in the secondary market. The difference between deferring these loan fees and costs until the loans are sold and recognizing them in earnings as incurred as required by FASB ASC Subtopic 825-10 is considered immaterial. Deferred loan fees and costs are reflected in the basis of the LHFS and, as such, impact the resulting gain or loss when the loans are sold.

Loans Held for Investment (LHFI)

LHFI are loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off and are reported at amortized cost net of the ACL. Amortized cost is the amount of unpaid principal, adjusted for the net amount of direct costs and nonrefundable loan fees associated with lending. The net amount of nonrefundable loan origination fees and direct costs associated with the lending process, including commitment fees, is deferred and accreted to interest income over the lives of the loans using a method that approximates the interest method. Interest on LHFI is accrued and recorded as interest income based on the outstanding principal balance.

Past due LHFI are loans contractually past due 30 days or more as to principal or interest payments. A LHFI is classified as nonaccrual, and the accrual of interest on such loan is discontinued, when the contractual payment of principal or interest becomes 90 days past due on commercial credits and 120 days past due on non-business purpose credits. In addition, a credit may be placed on nonaccrual at any other time Management has serious doubts about further collectability of principal or interest according to the contractual terms, even though the loan is currently performing. A LHFI may remain in accrual status if it is in the process of collection and well-secured. When a LHFI is placed in nonaccrual status, interest accrued but not received is reversed against interest income. Interest payments received on nonaccrual LHFI are applied against principal under the cost-recovery method, until qualifying for return to accrual status. Under the cost-recovery method, interest income is not recognized until the principal balance is reduced to zero. LHFI are restored to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Troubled Debt Restructuring (TDR)

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.

A formal TDR may include, but is not necessarily limited to, one or a combination of the following situations:

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Trustmark accepts a third-party receivable or other asset(s) of the borrower, in lieu of the receivable from the borrower.

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Trustmark accepts an equity interest in the borrower in lieu of the receivable.

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Trustmark accepts modification of the terms of the debt including but not limited to:

Reduction (absolute or contingent) of the stated interest rate to below the current market rate.

Extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk.

Reduction (absolute or contingent) of the face amount or maturity amount of the debt as stated in the note or other agreement.

Reduction (absolute or contingent) of accrued interest.

TDRs are addressed in Trustmark’s Loan Policy Manual, and in accordance with that policy, any modifications or concessions that may result in a TDR are subject to a special approval process which allows for control, identification, and monitoring of these arrangements. Prior to granting a concession, a revised borrowing arrangement is proposed which is structured so as to improve collectability of the loan in accordance with a reasonable repayment schedule with any loss promptly identified. It is supported by a thorough evaluation of the borrower’s financial condition and prospects for repayment under those revised terms. Other TDRs arising from renewals or extensions of existing debt are routinely identified through the processes utilized in the Problem Loan Committee and in the Credit Quality Review Committee. TDRs are subsequently reported to the Directors’ Credit Policy Committee on a quarterly basis and are disclosed in Trustmark’s consolidated financial statements in accordance with GAAP and regulatory reporting 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, “Receivables-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.

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.

Purchased Credit Deteriorated (PCD) Loans

Purchased loans which have experienced more than insignificant credit deterioration since origination are considered PCD loans. An initial ACL for PCD loans is determined at acquisition using the same ACL methodology as the LHFI. The initial ACL determined on a collective basis is allocated to individual loans. PCD loans are reported at the amortized cost, which equals the loan purchased price plus the initial ACL. The difference between the amortized cost basis of the PCD loan and the par value of the loan is the noncredit premium or discount, which is amortized into interest income over the life of the loan. Subsequent changes to the ACL are recorded through the PCL, LHFI.

Upon adoption of FASB ASC Topic 326, Trustmark elected to maintain pools of loans that were previously accounted for under FASB ASC Subtopic 310-30, “Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality,” and will continue to account for these pools as a unit of account. Loans are only removed from the existing loan pools if they are written off, paid off or sold. Upon adoption of FASB ASC Topic 326, the ACL was determined for each pool and added to the pool’s carrying value to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis is the noncredit premium or discount which will be amortized into interest income over the remaining life of the pool. Changes to the ACL after adoption of FASB ASC Topic 326 are recorded through the PCL, LHFI.

ACL

LHFI

Trustmark’s ACL methodology for LHFI is based upon guidance within FASB ASC Subtopic 326-20 as well as applicable regulatory guidance. The ACL on LHFI is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the LHFI portfolio is continuously monitored by Management and is reflected within the ACL on LHFI. The ACL on LHFI is an estimate of expected losses inherent within Trustmark’s existing LHFI portfolio. The ACL on LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Trustmark’s LHFI portfolio segments. These segments are further disaggregated into loan classes, the level at which credit risk is estimated. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by Management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall LHFI portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense.

Trustmark estimates the ACL on LHFI using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts including the novel coronavirus (COVID-19) pandemic effects. Trustmark uses a third-party software application to calculate the quantitative portion of the ACL on LHFI using a methodology and assumptions specific to each loan pool. The qualitative portion of the allowance is based on general economic conditions and other internal and external factors affecting Trustmark as a whole as well as specific LHFI. Factors considered include the following: lending policies and procedures, economic conditions and concentrations of credit, nature and volume of the portfolio, performance trends, and external factors. The quantitative and qualitative portions of the allowance are added together to determine the total ACL on LHFI, which reflects Management’s expectations of future conditions based on reasonable and supportable forecasts.

The methodology for estimating the amount of expected credit losses reported in the ACL on LHFI has two basic components: a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. In estimating the ACL for the collective component, loans are segregated into loan pools based on loan product types and similar risk characteristics.

The ACL for individual loans that do not share risk characteristics with other loans is measured as the difference between the discounted value of expected future cash flows, based on the effective interest rate at origination, and the amortized cost basis of the loan, or the net realizable value. The ACL is the difference between the loan’s net realizable value and its amortized cost basis (net of previous charge-offs and deferred loan fees and costs), except for collateral-dependent loans. A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The expected credit loss for collateral-dependent loans is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, adjusted for the estimated cost to sell. Fair value estimates for collateral-dependent loans are derived from appraised values based on the current market value or the ‘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. If the calculated expected credit loss is determined to be permanent or not recoverable, the amount of the expected credit loss is charged off.

Accrued interest receivable is not included in the amortized cost basis of Trustmark’s LHFI and, therefore, excluded from the estimate of credit losses for LHFI.

LHFI are charged off against the ACL on LHFI, with any subsequent recoveries credited back to the ACL on LHFI account. Expected recoveries may not exceed the aggregate of amounts previously charged off and expected to be charged off. Trustmark’s Loan Policy Manual dictates the guidelines to be followed in determining when a loan is charged off. Commercial purpose LHFI are charged off when a determination is made that the loan is uncollectible and continuance as a bankable asset is not warranted. Consumer LHFI secured by 1-4 family residential real estate are generally charged off or written down to the fair value of the collateral less cost to sell at no later than 180 days of delinquency. Non-real estate consumer purpose LHFI, including both secured and unsecured loans, are generally charged off by 120 days of delinquency. Consumer revolving lines of credit and credit card debt are generally charged off on or prior to 180 days of delinquency.

ACL on Off-Balance Sheet Credit Exposures

Under FASB ASC Subtopic 326-20, Trustmark is required to estimate expected credit losses for off-balance sheet credit exposures which are not unconditionally cancellable. Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit.

Expected credit losses for off-balance sheet credit exposures are estimated by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by Trustmark. Trustmark calculates a loan pool level unfunded amount for the period. Trustmark views the loan pools as either closed-ended or open-ended. Closed-ended loan pools are those that typically fund up to 100% such as other construction and nonowner-occupied. Open-ended loan pools are those that behave similar to a revolver such as the commercial and industrial and home equity line of credit loan pools. In addition to the unfunded balances, Trustmark uses a funding rate for loan pools that are considered open-ended. Trustmark calculates the funding rate of the open-ended loan pools each period. In order to mitigate volatility and incorporate historical experience in the funding rate, Trustmark uses a twelve-quarter moving average. For the closed-ended loan pools, Trustmark takes a conservative approach and uses a 100% funding rate. The expected funding rate is applied to each pool’s unfunded commitment balances to ensure that reserves will be applied to each pool based on balances expected to be funded based upon historical levels. In addition to the funding rate being applied to the unfunded commitment balance, a reserve rate is applied that incorporates both quantitative and qualitative aspects of the current period’s expected credit loss rate. The reserve rate is loan pool specific and is applied to the unfunded amount to ensure loss factors, both quantitative and qualitative, are being considered on the unfunded portion of the loan pool, consistent with the methodology applied to the funded loan pools. Adjustments to the ACL on off-balance sheet credit exposures are recorded to the PCL, off-balance sheet credit exposures.

No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by Trustmark or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

Premises and Equipment, Net

Premises and equipment are reported at cost, less accumulated depreciation and amortization. Depreciation is charged to expense over the estimated useful lives of the assets, which are up to thirty-nine years for buildings and three to ten years for furniture and equipment. Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. In cases where Trustmark has the right to renew the lease for additional periods, the lease term for the purpose of calculating amortization of the capitalized cost of the leasehold improvements is extended when Trustmark is “reasonably assured” that it will renew the lease. Depreciation and amortization expenses are computed using the straight-line method. Trustmark continually evaluates whether events and circumstances have occurred that indicate that such long-lived assets have become impaired. Measurement of any impairment of such long-lived assets is based on the fair values of those assets.

Branch closures and purchased land held for future branch expansion for more than five years are evaluated to determine if the related land, buildings and building improvements should be transferred to assets held for sale in accordance with FASB ASC Topic 360, “Property, Plant and Equipment.” The property is transferred to assets held for sale at the lower of its carrying value or fair value less cost to sell. An impairment loss is recorded at the time of transfer if the carrying value of the assets exceeds the fair value. Impairment losses are recorded as noninterest expense in other expense.

Mortgage Servicing Rights (MSR)

The fair value of the MSR is determined using discounted cash flow techniques benchmarked against third-party valuations. Estimates of fair value involve several assumptions, including the key valuation assumptions about market expectations of future prepayment rates, interest rates and discount rates which are provided by a third-party firm. Prepayment rates are projected using an industry standard prepayment model. The model considers other key factors, such as a wide range of standard industry assumptions tied to specific portfolio characteristics such as remittance cycles, escrow payment requirements, geographic factors, foreclosure loss exposure, VA no-bid exposure, delinquency rates and cost of servicing, including base cost and cost to service delinquent mortgages. Prevailing market conditions at the time of analysis are factored into the accumulation of assumptions and determination of servicing value.

Trustmark economically hedges changes in the fair value of the MSR attributable to interest rates. See Note 1 – Significant Accounting Policies, “Derivative Financial Instruments – Derivatives Not Designated as Hedging Instruments” for information regarding these derivative instruments.

Trustmark receives annual servicing fee income for loans serviced, which is recorded as noninterest income in mortgage banking, net. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Late fees and ancillary fees related to loan servicing are not considered material.

Goodwill and Identifiable Intangible Assets

Trustmark accounts for goodwill and other intangible assets in accordance with FASB ASC Topic 350, “Intangibles – Goodwill and Other.” Goodwill, which represents the excess of cost over the fair value of the net assets of an acquired business, is not amortized but tested for impairment on an annual basis, which is October 1 for Trustmark, or more often if events or circumstances indicate that there may be impairment.

Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with a related contract, asset or liability. Trustmark’s identifiable intangible assets primarily relate to core deposits, insurance customer relationships and borrower relationships. These intangibles, which have definite useful lives, are amortized on an accelerated basis over their estimated useful lives. In addition, these intangibles are evaluated for impairment whenever events and changes in circumstances indicate that the carrying amount should be reevaluated. Trustmark also purchased banking charters in order to facilitate its entry into the states of Florida and Texas. These identifiable intangible assets are being amortized on a straight-line method over 20 years.

Other Real Estate

Other real estate includes assets that have been acquired in satisfaction of debt through foreclosure and is recorded at the fair value less cost to sell (estimated fair value) at the time of foreclosure. Fair value is based on independent appraisals and other relevant factors. When foreclosed real estate is received in full satisfaction of a loan, the amount, if any, by which the recorded amount of the loan exceeds the estimated fair value of the property is a loss charged against the ACL at the time of foreclosure. If the recorded amount of the loan is less than the estimated fair value of the property, a credit is recorded to write-downs of other real estate at the time of foreclosure.

Other real estate is revalued on an annual basis or more often if market conditions necessitate. An other real estate specific reserve may be recorded through other real estate expense for declines in fair value subsequent to foreclosure based on recent appraisals or changes in market conditions. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged against an existing other real estate specific reserve or as noninterest expense in other real estate expense if a reserve does not exist. Costs of operating and maintaining the properties as well as gains or losses on their disposition are also included in other real estate expense as incurred. Improvements made to properties are capitalized if the expenditures are expected to be recovered upon the sale of the properties.

Leases

Once Trustmark identifies and determines certain contracts are leases according to FASB ASC Topic 842, "Leases," Trustmark classifies it as an operating or a finance lease and recognizes a right-of-use asset and a lease liability at the lease commencement date. The lease liability represents the present value of the lease payments that remain unpaid as of the commencement date and the right-of-use asset is the initial lease liability recognized for the lease plus any lease payments made to the lessor at or before the commencement date as well as any initial direct costs less any lease incentives received. Trustmark accounts for the lease and nonlease components separately as such amounts are readily determinable.

Trustmark’s finance leases consist of building and equipment leases. Trustmark recognizes interest expense based on the discount rate of the lease as interest expense in other interest expense and recognizes depreciation expense on a straight-line basis over the lease term as noninterest expense in net occupancy – premises for building leases and in equipment expense for equipment leases. Trustmark amortizes the right-of-use asset over the life of the lease term on a straight-line basis. Trustmark’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term. Trustmark records its finance lease right-of-use assets in premises and equipment, net and its finance lease liabilities in other borrowings.

Trustmark’s operating leases primarily consist of building and land leases. Trustmark recognizes lease rent expense on a straight-line basis over the term of the lease contract and records it as noninterest expense in net occupancy – premises for building and land leases and in equipment expense for equipment leases. Trustmark’s amortization of the right-of-use asset is the difference between the straight-line lease expense and the interest expense recognized on the lease liability during the period. Trustmark’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term.

Trustmark’s leases typically have one or more renewal options included in the lease contract. Due to the nature of Trustmark’s leases, for leases with renewal options available, Trustmark considers the first renewal option as reasonably certain to renew and is therefore included in the measurement of the right-of-use assets and lease liabilities.

its incremental borrowing rate, which is the rate of interest Trustmark would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. Trustmark was able to determine the implicit interest rate for its equipment leases and used that rate as its discount rate. Since the implicit interest rate for most of its building and land leases were not readily determinable, Trustmark used its incremental borrowing rate.

Trustmark made an accounting policy election to not recognize short-term leases (12 months or less) on the balance sheet. Trustmark’s short-term leases primarily include automated teller machines. For short-term leases, Trustmark recognizes lease expense on a straight-line basis over the lease term.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank of Atlanta Stock

Trustmark accounts for its investments in FHLB and Federal Reserve Bank of Atlanta stock in accordance with FASB ASC Subtopic 942-325, “Financial Services-Depository and Lending-Investments-Other.” FHLB and Federal Reserve Bank stock are equity securities that do not have a readily determinable fair value because its ownership is restricted and it lacks a market. FHLB and Federal Reserve Bank stock are carried at cost and evaluated for impairment. Trustmark’s investment in member bank stock is included in other assets in the accompanying consolidated balance sheets. At December 31, 2022 and 2021, Trustmark’s investment in member bank stock totaled $72.2 million and $32.9 million, respectively. The carrying value of Trustmark’s member bank stock gave rise to no other-than-temporary impairment for the years ended December 31, 2022, 2021 and 2020.

Revenue from Contracts with Customers

Trustmark accounts for revenue from contracts with customers in accordance with FASB ASC Topic 606, “Revenue from Contracts with Customers,” which provides that revenue be recognized in a manner that depicts the transfer of goods or services to a customer in an amount that reflects the consideration Trustmark expects to be entitled to in exchange for those goods or services. Revenue from contracts with customers is recognized either over time in a manner that depicts Trustmark’s performance, or at a point in time when control of the goods or services are transferred to the customer. Trustmark’s noninterest income, excluding all of mortgage banking, net and securities gains (losses), net and portions of bank card and other fees and other income, are considered within the scope of FASB ASC Topic 606. Gains or losses on the sale of other real estate, which are included in Trustmark’s noninterest expense as other real estate expense, are also within the scope of FASB ASC Topic 606.

General Banking Segment

Service Charges on Deposit Accounts

In general, deposit accounts represent contracts with customers with no fixed duration and can be terminated or modified by either party at any time without compensation to the other party. According to FASB ASC Topic 606, a contract that can be terminated by either party without compensation does not exist for periods beyond the then-current period. Therefore, deposit contracts are considered to renew day-to-day if not minute-to-minute.

Deposit contracts have a single continuous or stand-ready service obligation whereby Trustmark makes customer funds available for use by the customer as and when the customer chooses as well as other services such as statement rendering and online banking. The specific services provided vary based on the type of deposit account. These services are not individually distinct, but are distinct as a group, and therefore, constitute a single performance obligation which is satisfied over time and qualifies as a series of distinct service periods.

Trustmark receives a fixed service charge amount as consideration monthly for services rendered. The service charge amount varies based on the type of deposit account. Some of the service charge revenue is subject to refund provisions, which is variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient permitted under FASB ASC Topic 606 for recognition of service charge revenue. Therefore, revenue is recognized at the time and in the amount the customer is charged. The service charge revenue is presented net of refunded amounts on Trustmark’s consolidated statements of income.

Services related to non-sufficient funds, overdrafts, excess account activity, stop payments, dormant accounts, etc. are considered optional purchases for a deposit contract because there is no performance obligation for Trustmark until the service is requested by the customer or the occurrence of a triggering event. Fees for these services are fixed amounts and are charged to the customer when the service is performed. Revenue is recognized at the time the customer is charged.

Bank Card and Other Fees

Revenue from contracts with customers in bank card and other fees includes income related to interchange fees and various other contracts which primarily consists of contracts with a single performance obligation that is satisfied at a point in time. Trustmark receives a fixed consideration amount once the performance obligation is completed for these contracts. Trustmark reports revenue from these contracts net of amounts refunded or due to a third party.

As both a debit and credit card issuer, Trustmark receives an interchange fee for every card transaction completed by its customers with a merchant. Trustmark receives two types of interchange fees: point-of-sale transactions in which the customer must enter the PIN associated with the card to complete the transaction (a debit card transaction), and signature transactions in which the signature of the customer is required to complete the transaction (a credit card transaction).

Trustmark, as the card issuing or settlement bank, has a contract (implied based on customary business practices) with the payment network in which Trustmark has a single continuous service obligation to make funds available for settlement of the card transaction. Trustmark’s service obligation is satisfied over time and qualifies as a series of distinct service periods. Trustmark receives interchange fees as consideration for services rendered in the amount established by the respective payment network. The interchange fees are established by the payment network based on the type of transaction and is posted on their website. Trustmark receives and records interchange fee revenue from the payment networks daily net of all fees and amounts due to the payment network.

Other Income

Revenue from contracts with customers in other income includes income related to cash management services and other contracts with a single performance obligation that is satisfied at a point in time. Trustmark receives a fixed consideration amount once the performance obligation is completed for these contracts. Trustmark reports revenue from these contracts net of amounts refunded or due to a third party.

Trustmark provides cash management services through the delivery of various products and services offered to its business and municipal customers including various departments of state, city and local governments, universities and other non-profit entities. Similar to the deposit account contracts, the cash management contracts primarily represent contracts with customers with no fixed duration and can be terminated or modified by either party at any time without compensation to the other party. Therefore, cash management contracts are generally considered to renew day-to-day if not minute-to-minute.

Cash management contracts have a single continuous or stand-ready service obligation whereby Trustmark makes a specific service or group of services available for use by the customer as and when the customer chooses. The specific services provided vary based on the type of account or product. These services are not individually distinct, but are distinct as a group, and therefore, constitute a single performance obligation which is satisfied over time and qualifies as a series of distinct service periods.

Trustmark receives a set service charge or maintenance fee amount as consideration monthly for services rendered. However, some of the fees are based on the number of transactions that occur (i.e., flat fee for a set number of transactions per month then an additional charge for each transaction after that) or the average daily account balance maintained by the customer during the month and a small amount of the cash management fee revenue is subject to refund provisions. These fees represent variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient permitted under FASB ASC Topic 606 for recognition of cash management fee revenue. The cash management revenue is presented net of any refunded amounts on Trustmark’s consolidated statements of income.

Trustmark’s merchant services provider contracts directly with Trustmark business customers and provides Trustmark’s merchant customers card processing equipment and transaction processing services. Trustmark’s contract with the merchant services provider has a single-continuous service obligation to provide customer referrals for potential new accounts which is satisfied over time and qualifies as a series of distinct service periods. Trustmark receives a flat fee for each new account established and a percentage of the residual income related to transactions processed for Trustmark’s merchant customers each month as provided in the contract. Under the guidelines of FASB ASC Topic 606, the fee received for each new account and the profit sharing represent variable consideration. Revenue from merchant card services contracts is recognized monthly using a time-elapsed measure of progress. Trustmark has elected the ‘as-invoiced’ practical expedient permitted under FASB ASC Topic 606 for recognition of the merchant card services revenue.

Other Real Estate

ended December 31, 2022 resulted in a net loss of $1.0 million compared to a net loss of $1.9 million for the year ended December 31, 2021 and a net gain of $897 thousand for the year ended December 31, 2020.

In general, purchases of Trustmark’s other real estate property are not financed by Trustmark. Financing the purchase of other real estate is evaluated based upon the same lending policies and procedures as all other types of loans. Under FASB ASC Subtopic 610-20, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets,” when Trustmark finances the sale of its other real estate to a buyer, Trustmark is required to assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these two criteria are met, Trustmark derecognizes the other real estate asset and records a gain or loss on the sale once control of the property is transferred to the buyer.

Wealth Management Segment

Trust Management

There are five categories of revenue included in trust management: personal trust and investments, retirement plan services, institutional custody, corporate trust and other. Each of these categories includes multiple types of contracts, service obligations and fee income. However, the majority of these contracts include a single service obligation that is satisfied over time, the customer is charged in arrears for services rendered and revenue is recognized when payment is received. In general, the time period between when the service obligation is completed and when payment from the customer is received is less than 30 days. Revenue from trust management contracts is primarily related to monthly service periods and based on the prior month-end’s market value. Some trust management revenue is mandated by a court order, while other revenue consists of flat fees. Trust management revenue based on an account’s market value represents variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient allowed under FASB ASC Topic 606 to account for the trust management revenue.

Assets under administration held by Trustmark in a fiduciary or agency capacity for customers are not included in Trustmark’s consolidated balance sheets.

Investment Services

Investment services includes both brokerage and annuity income. Trustmark has a contract with a third-party investment services company which contains a single continuous service obligation, to provide broker-dealer and advisory services to customers on behalf of the third-party, which is satisfied over time and qualifies as a series of distinct service periods. Trustmark serves as the agent between the third-party investment services company, the principle, and the customer. In accordance with the contract, Trustmark receives a monthly payment from the investment services company for commissions and advisory fees (asset management fees) earned on transactions completed in the prior month net of all charges and fees due to the investment services company. Trustmark recognizes revenue from the investment services company, net of the revenue sharing expense due to the investment services company, when the payments are received. Commissions vary from month-to-month based on the specific products and transactions completed. The advisory fees vary based on the average daily balance of the managed assets for the period. The commissions and advisory fees represent variable consideration under FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient allowed under FASB ASC Topic 606 to recognize revenue from the investment services company.

Insurance Segment

Fisher Brown Bottrell Insurance, Inc. (FBBI), a wholly-owned subsidiary of Trustmark National Bank (TNB), operates as an insurance broker representing the policyholder and has no allegiance with any one insurance provider. FBBI serves as the agent between the insurance provider (either insurance carrier or broker), the principal, and the policy holder, the customer. FBBI has four general categories of insurance contracts: commercial, commercial installments, personal and employee benefits. FBBI’s insurance contracts contain a single performance obligation, policy placement, which is satisfied at a point in time. FBBI’s performance obligation is satisfied as of the policy effective date.

In addition to policy placement, FBBI provides various other periodic services to the policyholders for which no additional fee is charged. These additional services are not considered material to the overall contract. Trustmark has elected the immaterial promises practical expedient allowed under FASB ASC Topic 606, which allows Trustmark to not assess whether promised services are performance obligations if the promised services are immaterial in the context of the contract. Therefore, the immaterial additional services offered to policyholders are not considered a performance obligation and no amount of the contract transaction price is allocated to these services.

In general, the transaction price for the insurance contracts is an established commission amount agreed upon by FBBI and the insurance provider. The commission amount varies based on the insurance provider and the type of policy. There are a small number of insurance contracts which FBBI does not receive a commission but charges a fee directly to the policyholder.

Most of the commissions from insurance contracts are subject to clawback provisions which require FBBI to refund a prorated amount of the commissions received as a result of policy cancellations or lapses. Commissions subject to clawback provisions are considered variable consideration under FASB ASC Topic 606. Trustmark believes the expected value method of estimating the commissions subject to clawback provisions would best predict the amount of commissions FBBI will be entitled to because of the large number of insurance contracts with similar characteristics and the number of possible outcomes. FBBI calculates a separate weighted-average percentage (returned commissions percentage) based on actual cancellations over the previous three years for commercial lines, bonds, and personal lines. FBBI applies the respective returned commissions percentage to the commission revenue earned related to insurance contracts within these three lines each month to calculate the estimated returned commissions amount, which represents the variable consideration subject to variable constraint. Revenue from insurance contracts is reported net of the variable consideration subject to variable constraint. FBBI performs an analysis of the returned commissions reserve quarterly and adjusts the reserve balance based on all available information including actual cancellations and the remaining term of the contract. The returned commission percentage is updated annually.

Insurance Producers at FBBI earn commission as compensation for each policy they are responsible for placing. FBBI utilizes a ‘pay when paid’ system. Under the ‘pay when paid’ system, Producers receive the commissions for which they are entitled at the end of the month following the month in which FBBI receives payment from the insurance provider or customer. Under FASB ASC Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers,” the commission paid to the Producers is an incremental cost of obtaining a contract, which should be capitalized and amortized in a manner consistent with the pattern of transfer of the service related to the contract acquisition asset. Insurance contracts have a term of one year or less; therefore, Trustmark has elected the cost of obtaining a contract practical expedient allowed under FASB ASC Subtopic 340-40, which allows FBBI to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the contract asset that FBBI otherwise would have recognized is one year or less. Commission expense is recorded as noninterest expense in salaries and employee benefits when paid to the Producers.

Commercial Insurance

Revenue from FBBI’s commercial insurance contracts (both agency billed and direct billed) consists of a set commission amount, which is subject to clawback provisions. Revenue from commercial installment insurance contracts consists of a set commission amount, which is not subject to clawback provisions. An estimated commission amount is entered in the agency management system when a commercial insurance contract is placed. FBBI records a top line receivable based on the estimated commission amount entered in the system each month, along with a corresponding amount recognized as revenue, and then adjusts the estimated receivable when the commissions are received from the insurance provider or customer.

Personal Insurance

Revenue from FBBI’s personal insurance contracts consists of a set commission amount, which is subject to clawback provisions, and is recognized when payment is received (generally 30-60 days after the policy effective date). Personal insurance contracts have a term of one year; therefore, recognizing the revenue from these contracts when payment is received is not materially different than recognizing the revenue at the policy effective date for any given period.

Employee Benefits Insurance

Revenue from FBBI’s employee benefits insurance contracts consists of a variable commission amount, which is not subject to clawback provisions, and is recognized when payment is received, typically on a monthly basis. Employee benefits insurance contracts have a set commission rate, but can vary from period to period based on changes in the number of employees covered by the policy (i.e., new hires and terminations). FBBI generally receives twelve monthly commission payments for these contracts with the initial payment being received approximately 60-90 days after the policy effective date. Under the guidelines of FASB ASC Topic 606, commissions from employee benefits insurance contracts represent fixed consideration because at contract inception (policy effective date) there is a set commission rate times a known number of covered employees. Changes in the number of covered employees are not known, nor can they be predicted, at contract inception. An increase or decrease in the number of covered employees after the policy effective date is considered a contract modification resulting from a change in scope and transaction price under FASB ASC Topic 606. This modification is treated as part of the existing contract because it does not add a distinct service. Employee benefits insurance contracts have a term of one year; therefore, recognizing the revenue from these contracts when payment is received is not materially different than recognizing the revenue at the policy effective date or the contract modification date for any given period.

Contingency Commission Insurance

In addition to the insurance contracts discussed above, FBBI has contracts with various insurance providers for which it receives contingency income based on volume of business and claims experience. FBBI is the principal and the insurance provider is the customer for these contingency commission insurance contracts. The contingency commission contracts have a single continuous or stand-ready service obligation whereby FBBI places policies with policyholders when acceptable to the insurance provider, which is satisfied over time. The contract term for these contingency commission contracts is one year. Revenue is recognized from the contingency commission contracts monthly using a time-elapsed measure of progress. FBBI accrues throughout the current year the amount of contingency commission income it expects to receive in the following year adjusted for a degree of uncertainty. FBBI updates a detail by insurance provider with the contingency commission income received, which is then compared to the total amount that was expected to be received. If actual receipts are higher or lower than the amount accrued in the prior year, the monthly accrual for the current year is adjusted accordingly.

Under the guidelines of FASB ASC Topic 606, revenue from contingency commission insurance contracts represents variable consideration and should be estimated using one of the two allowable methods subject to the variable consideration constraint. FBBI believes the most likely amount method to be the most appropriate method for estimating the variable consideration as there are only a few possible outcomes for each contract.

Derivative Financial Instruments

Trustmark maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. Trustmark’s interest rate risk management strategy involves modifying the repricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows. Under the guidelines of FASB ASC Topic 815, “Derivatives and Hedging,” all derivative instruments are required to be recognized as either assets or liabilities and carried at fair value on the balance sheet. The fair value of derivative positions outstanding is included in other assets and/or other liabilities in the accompanying consolidated balance sheets and in the net change in these financial statement line items in the accompanying consolidated statements of cash flows as well as included in noninterest income in the accompanying consolidated statements of income and other comprehensive income (loss), net of tax in the accompanying consolidated statements of comprehensive income. Trustmark’s interest rate swap derivative instruments are subject to master netting agreements, and therefore, eligible for offsetting in the consolidated balance sheets. Trustmark has elected to not offset any derivative instruments in its consolidated balance sheets.

Derivatives Designated as Hedging Instruments

FASB ASC Topic 815, Derivatives and Hedging (ASC 815), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

When entering into a hedge transaction, Trustmark formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge transaction, which includes designating the derivative instrument as a fair value or cash flow hedge to a specific asset or liability on the balance sheet or to specific forecasted transactions and the risk being hedged, along with a formal assessment at the inception of the hedge as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item. Trustmark continues to assess hedge effectiveness on an ongoing basis using either a qualitative or a quantitative assessment (regression analysis).

As required by ASC 815, Trustmark records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether Trustmark has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. For cash flow hedges, changes in the fair value of the derivative instrument are recorded in accumulated other

comprehensive income (loss) and subsequently reclassified to net income in the same period that the hedged transaction impacts net income. Upon discontinuation of hedge accounting for cash flow hedges, any amounts in accumulated other comprehensive income (loss) related to that relationship affects earnings at the same time and in the same manner in which the hedged transaction affects earnings. If it becomes probable that the forecasted transaction will not occur, any related amounts in accumulated other comprehensive income (loss) are reclassified to earnings immediately.

Derivatives Not Designated as Hedging Instruments

Trustmark also utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified time period. Changes in the fair value of these derivative instruments are recorded as noninterest income in mortgage banking, net and are offset by the changes in the fair value of forward sales contracts.

Trustmark offers certain derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivative transactions executed as part of this program are not designated as qualifying hedging relationships and are, therefore, carried at fair value with the change in fair value recorded as noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As a result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets.

Income Taxes

Trustmark accounts for uncertain tax positions in accordance with FASB ASC Topic 740, “Income Taxes,” which clarifies the accounting and disclosure for uncertainty in tax positions. Under the guidance of FASB ASC Topic 740, Trustmark accounts for deferred income taxes using the liability method. Deferred tax assets and liabilities are based on temporary differences between the financial statement carrying amounts and the tax basis of Trustmark’s assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled and are presented net in the accompanying consolidated balance sheets in other assets.

Stock-Based Compensation

Trustmark accounts for the stock and incentive compensation under the provisions of FASB ASC Topic 718, “Compensation – Stock Compensation.” Under this accounting guidance, fair value is established as the measurement objective in accounting for stock awards and requires the application of a fair value based measurement method in accounting for compensation cost, which is recognized over the requisite service period. Trustmark has elected to account for forfeitures of stock awards as they occur.

Statements of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks. The following table reflects specific transaction amounts for the periods presented ($ in thousands):


	Years Ended December 31,
	2022		2021		2020
Income taxes paid	$	2,701	$	15,259	$	46,648
Interest paid on deposits and borrowings		45,275		24,429		42,968
Noncash transfers from loans to other real estate		1,533		770		635
Securities transferred from available for sale to held to maturity		674,092		—		—
Investment in tax credit partnership not funded		18,891		10,647		5,893
Finance right-of-use assets resulting from lease liabilities		—		92		—
Operating right-of-use assets resulting from lease liabilities		6,912		9,666		3,774
Transfer of long-term FHLB advances to short-term		—		—		651

Per Share Data

Trustmark accounts for per share data in accordance with FASB ASC Topic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share (EPS) pursuant to the two-class method. Trustmark has determined that its outstanding unvested stock awards are not participating securities. Based on this determination, no change has been made to Trustmark’s current computation for basic and diluted EPS.

Basic EPS is computed by dividing net income by the weighted-average shares of common stock outstanding. Diluted EPS is computed by dividing net income by the weighted-average shares of common stock outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period.

The following table reflects weighted-average shares used to calculate basic and diluted EPS for the periods presented (in thousands):


	Years Ended December 31,
	2022		2021		2020
Basic shares		61,242		62,788		63,505
Dilutive shares		190		185		141
Diluted shares		61,432		62,973		63,646

Weighted-average antidilutive stock awards were excluded in determining diluted EPS. The following table reflects weighted-average antidilutive stock awards for the periods presented (in thousands):


	Years Ended December 31,
	2022		2021		2020
Weighted-average antidilutive stock awards		—		1		57

Fair Value Measurements

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires certain disclosures about fair value measurements. The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. Depending on the nature of the asset or liability, Trustmark uses various valuation techniques and assumptions when estimating fair value. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. FASB ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that Trustmark has the ability to access at the measurement date.

Level 2 Inputs – Valuation is based upon quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability such as interest rates, yield curves, volatilities and default rates and inputs that are derived principally from or corroborated by observable market data.

Level 3 Inputs – Unobservable inputs reflecting the reporting entity’s own determination about the assumptions that market participants would use in pricing the asset or liability based on the best information available.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. Trustmark’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer.

Accounting Policies Recently Adopted

Except for the changes detailed below, Trustmark has consistently applied its accounting policies to all periods presented in the accompanying consolidated financial statements.

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” Issued in March 2020, ASU 2020-04 seeks to provided additional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The FASB issued ASU 2020-04 is response to concerns about the structural risks of interbank offered rates and, in particular, the risk that the London Interbank Offer Rate (LIBOR) will no longer be used. Regulators have begun reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. Stakeholders have raised operational challenges likely to arise with the reference rate reform, particularly related to contract modifications and hedge accounting. The amendments of ASU 2020-04, which are elective and apply to all entities, provide expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by the reference rate reform id certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. The optional expedients for contract modifications should be applied consistently for all contracts or transactions within the relevant Codification Topic or Subtopic or Industry Subtopic that contains the related guidance. The optional expedients for hedging relationships can be elected on an individual hedging relationship basis. On January 7, 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” to clarify the scope of the reference rate reform guidance in FASB ASC Topic 848. ASU 2021-01 refines the scope of FASB ASC Topic 848 to clarify that certain optional expedients and exceptions therein for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. Specifically, modifications related to reference rate reform would not be considered an event that requires reassessment of previous accounting conclusions. The amendments in ASU 2021-01 also amend the expedients and exceptions in FASB ASC Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments of ASU 2021-01 were effective immediately when issued. Entities may choose to apply the amendments of ASU 2021-01 retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. If an entity elects to apply any of the amendments in this ASU for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date that the entity applies the election. On December 21, 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” which defers the sunset date from December 31, 2022, to December 31, 2024. The purpose of the guidance in FASB ASC Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the LIBOR would cease being published. At the time that ASU 2020-04 was issued, the United Kingdom Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade or compel banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December 31, 2022, 12 months after the expected cessation date of all currencies and tenors of LIBOR. However, in March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of US$ LIBOR would be June 30, 2023, which was beyond the then-current sunset date of FASB ASC Topic 848. Thus, the amendments of ASU 2022-06 defer the sunset date to December 31, 2024, after which entities will no longer be permitted to apply the relief in FASB ASC Topic 848; moreover, it applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments of ASU 2022-06 were effective immediately when issued. While the benchmark provider for US$ LIBOR (which was typically the benchmark that Trustmark used) intends to provide the benchmark for some tenors of US$ LIBOR through June 2023, Trustmark transitioned to SOFR for new variable rate loans, derivative contracts, borrowings and other financial instruments as of January 1, 2022. Management cannot make a determination at this time as to the impact the amendments of ASU 2020-04, ASU 2021-01 and ASU 2022-06 or the reference rate reform will have on its consolidated financial statements.

ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326): Trouble Debt Restructurings and Vintage Disclosures.” Issued in March 2022, ASU 2022-02 seeks to improve the decision usefulness of information provided to investors concerning certain loan refinancings, restructurings and write-offs. In regard to troubled debt restructurings (TDRs) by creditors, investors and preparers observed that the additional designation of a loan modification as a TDR and the related accounting are unnecessarily complex and no

longer provide decision-useful information. The amendments of ASU 2022-02 eliminate the accounting guidance for TDRs by creditors in FASB ASC Subtopic 310-40, “Receivables-Troubled Debt Restructurings by Creditors,” as it is no longer meaningful due to the implementation of FASB ASC Topic 326, which requires an entity to consider lifetime expected credit losses on loans when establishing an allowance for credit losses. Therefore, most losses that would have been realized for a TDR under FASB ASC Subtopic 310-40 are now captured by the accounting required under FASB ASC Topic 326. The amendments of ASU 2022-02 also enhanced disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Stakeholders also noted inconsistency in the requirement for a public business entity (PBE) to disclose gross write-offs and gross recoveries by class of financing receivable and major security type in certain vintage disclosures. Financial statement users expressed that, in addition to the existing vintage disclosures in FASB ASC Topic 326, information about gross write-offs by year of origination would be helpful in understanding credit quality changes in an entity’s loan portfolio and underwriting performance. For PBEs, the amendments of ASU 2022-02 require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of FASB ASC Subtopic 326-20, “Financial Instruments-Credit Losses-Measured at Amortized Cost.” For write-offs associated with origination dates that are more than five annual periods before the reporting period, an entity may present aggregate amounts in the current period for financing receivables and net investment in leases. The amendments of ASU 2022-02 are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022 for entities that have already adopted the amendments of ASU 2016-13. Early adoption is permitted, provided that an entity has adopted ASU 2016-13. If an entity elects to early adopt the amendments of this ASU during an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. In addition, an entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. Trustmark adopted the amendments of ASU 2022-02 effective January 1, 2023. The amendments of ASU 2022-02 include only changes to certain financial statement disclosures; and, therefore, adoption of ASU 2022-02 is not expected to have a material impact on Trustmark’s consolidated financial statements or results of operations. The enhanced disclosures required by ASU 2022-02 will be presented in the notes to the financial statements beginning with Trustmark’s Quarterly Report on Form 10-Q for the period ending March 31, 2023.

Note 2 – Cash and Due from Banks

Trustmark is required to maintain average reserve balances with the Federal Reserve Bank of Atlanta based on a percentage of deposits. Effective March 26, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent, eliminating the reserve requirements for all depository institutions, in order to provide liquidity in the banking system to support lending to households and businesses due to the COVID-19 pandemic.

Note 3 – Securities Available for Sale and Held to Maturity

The following tables are a summary of the amortized cost and estimated fair value of securities available for sale and held to maturity at December 31, 2022 and 2021 ($ in thousands):


	Securities Available for Sale									Securities Held to Maturity
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
December 31, 2022	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. Treasury securities	$	425,719	$	308	$	(34,514	)	$	391,513	$	28,295	$	—	$	(115	)	$	28,180
U.S. Government agency obligations		8,297		—		(531	)		7,766		—		—		—			—
Obligations of states and political subdivisions		4,820		53		(11	)		4,862		4,510		3		(3	)		4,510
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		30,534		7		(3,444	)		27,097		4,442		—		(395	)		4,047
Issued by FNMA and FHLMC		1,541,570		12		(196,119	)		1,345,463		509,311		—		(19,586	)		489,725
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		123,755		—		(8,615	)		115,140		188,201		—		(13,826	)		174,375
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		136,014		—		(3,773	)		132,241		759,755		34		(54,037	)		705,752
Total	$	2,270,709	$	380	$	(247,007	)	$	2,024,082	$	1,494,514	$	37	$	(87,962	)	$	1,406,589

December 31, 2021
U.S. Treasury securities	$	349,562	$	16	$	(4,938	)	$	344,640	$	—	$	—	$	—		$	—
U.S. Government agency obligations		14,044		20		(337	)		13,727		—		—		—			—
Obligations of states and political subdivisions		5,134		580		—			5,714		7,328		64		(3	)		7,389
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		38,942		665		(34	)		39,573		5,005		187		(3	)		5,189
Issued by FNMA and FHLMC		2,230,498		8,945	��	(21,014	)		2,218,429		43,444		962		—			44,406
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		193,908		2,879		(97	)		196,690		241,934		9,015		(31	)		250,918
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		424,201		404		(4,501	)		420,104		44,826		783		—			45,609
Total	$	3,256,289	$	13,509	$	(30,921	)	$	3,238,877	$	342,537	$	11,011	$	(37	)	$	353,511

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale to securities held to maturity. At the date of transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million, net of tax). During 2022, Trustmark reclassified a total of $766.0 million of securities available for sale to securities held to maturity. On the date of these transfers, the net unrealized holding loss on the available for sale securities totaled approximately $91.9 million ($68.9 million, net of tax).

The securities were transferred at fair value, which became the cost basis for the securities held to maturity. The net unrealized holding loss will be amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of these transfers. At December 31, 2022, the net unamortized, unrealized loss on transferred securities included in accumulated other comprehensive income (loss) in the accompanying balance sheet totaled approximately $92.3 million ($69.2 million, net of tax) compared to approximately $6.3 million ($4.7 million, net of tax) at December 31, 2021.

ACL on Securities

Securities Available for Sale

Quarterly, Trustmark evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, Trustmark performs further analysis. If Trustmark determines that a credit loss exists, the credit portion of the allowance is measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss Trustmark records will be limited to the amount by which the amortized cost exceeds the fair value. The DCF analysis utilizes contractual maturities, as well as third-party credit ratings and cumulative default rates published annually by Moody’s.

At both December 31, 2022 and 2021, the results of the loss analysis performed did not identify any securities that warranted DCF analysis and no credit loss was recognized on any of the securities available for sale.

Accrued interest receivable is excluded from the estimate of credit losses for securities available for sale. At December 31, 2022 and 2021, accrued interest receivable totaled $4.0 million and $5.1 million, respectively, for securities available for sale and was reported in other assets on the accompanying consolidated balance sheet.

Securities Held to Maturity

At December 31, 2022 and 2021, the potential credit loss exposure for Trustmark’s securities held to maturity was $4.5 million and $7.3 million, respectively, and consisted of municipal securities. After applying appropriate probability of default and loss given default assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded at December 31, 2022 and 2021.

Accrued interest receivable is excluded from the estimate of credit losses for securities held to maturity. At December 31, 2022 and 2021, accrued interest receivable totaled $2.7 million and $670 thousand for securities held to maturity and was reported in other assets on the accompanying consolidated balance sheet.

At both December 31, 2022 and 2021, Trustmark had no securities held to maturity that were past due 30 days or more as to principal or interest payments. Trustmark had no securities held to maturity classified as nonaccrual at December 31, 2022 and 2021.

Trustmark monitors the credit quality of securities held to maturity on a monthly basis through credit ratings. The following table presents the amortized cost of Trustmark’s securities held to maturity by credit rating, as determined by Moody’s, at December 31, 2022 and 2021 ($ in thousands):


	December 31, 2022		December 31, 2021
Aaa	$	1,490,004	$	335,208
Aa1 to Aa3		3,001		5,007
Not Rated (1)		1,509		2,322
Total	$	1,494,514	$	342,537

(1)

Not rated securities primarily consist of Mississippi municipal general obligations.

The table below includes securities with gross unrealized losses for which an ACL has not been recorded and segregated by length of impairment at December 31, 2022 and 2021 ($ in thousands):


	Less than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
December 31, 2022	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Treasury securities	$	161,298	$	(5,655	)	$	258,087	$	(28,974	)	$	419,385	$	(34,629	)
U.S. Government agency obligations		1,828		(184	)		5,938		(347	)		7,766		(531	)
Obligations of states and political subdivisions		1,017		(11	)		3,664		(3	)		4,681		(14	)
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		27,223		(3,270	)		3,577		(569	)		30,800		(3,839	)
Issued by FNMA and FHLMC		770,865		(41,807	)		1,062,041		(173,898	)		1,832,906		(215,705	)
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		281,964		(21,452	)		7,235		(989	)		289,199		(22,441	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		833,970		(57,742	)		1,644		(68	)		835,614		(57,810	)
Total	$	2,078,165	$	(130,121	)	$	1,342,186	$	(204,848	)	$	3,420,351	$	(334,969	)

December 31, 2021
U.S. Treasury securities	$	315,123	$	(4,938	)	$	—	$	—		$	315,123	$	(4,938	)
U.S. Government agency obligations		1,312		(5	)		8,619		(332	)		9,931		(337	)
Obligations of states and political subdivisions		3,006		(1	)		667		(2	)		3,673		(3	)
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		6,040		(37	)		—		—			6,040		(37	)
Issued by FNMA and FHLMC		1,734,921		(19,980	)		55,303		(1,034	)		1,790,224		(21,014	)
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		19,038		(99	)		2,647		(29	)		21,685		(128	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		344,025		(4,492	)		639		(9	)		344,664		(4,501	)
Total	$	2,423,465	$	(29,552	)	$	67,875	$	(1,406	)	$	2,491,340	$	(30,958	)

The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Trustmark does not intend to sell these securities and it is more likely than not that Trustmark will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

Securities Gains and Losses

For the years ended December 31, 2022, 2021 and 2020, there were no gross realized gains or losses as a result of calls and dispositions of securities. Realized gains and losses are determined using the specific identification method and are included in noninterest income as securities gains (losses), net.

Securities Pledged

Securities with a carrying value of $2.693 billion and $2.831 billion at December 31, 2022 and 2021, respectively, were pledged to collateralize public deposits and securities sold under repurchase agreements and for other purposes as permitted by law. At both December 31, 2022 and 2021, none of these securities were pledged under the Federal Reserve Discount Window program to provide additional contingency funding capacity.

Contractual Maturities

The amortized cost and estimated fair value of securities available for sale and held to maturity at December 31, 2022, by contractual maturity, are shown below ($ in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Securities				Securities
	Available for Sale				Held to Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	30,089	$	30,208	$	4,169	$	4,170
Due after one year through five years		389,528		356,175		341		340
Due after five years through ten years		14,218		12,999		28,295		28,180
Due after ten years		5,001		4,759		—		—
		438,836		404,141		32,805		32,690
Mortgage-backed securities		1,831,873		1,619,941		1,461,709		1,373,899
Total	$	2,270,709	$	2,024,082	$	1,494,514	$	1,406,589

Note 4 – LHFI and ACL, LHFI

At December 31, 2022 and 2021, LHFI consisted of the following ($ in thousands):


	December 31,
	2022		2021
Loans secured by real estate:
Construction, land development and other land	$	690,616	$	596,968
Other secured by 1-4 family residential properties		590,790		517,683
Secured by nonfarm, nonresidential properties		3,278,830		2,977,084
Other real estate secured		742,538		726,043
Other loans secured by real estate:
Other construction		1,028,926		711,813
Secured by 1-4 family residential properties		2,185,057		1,460,310
Commercial and industrial loans		1,821,259		1,414,279
Consumer loans		170,230		162,555
State and other political subdivision loans		1,223,863		1,146,251
Other commercial loans		471,930		534,843
LHFI		12,204,039		10,247,829
Less ACL		120,214		99,457
Net LHFI	$	12,083,825	$	10,148,372

Accrued interest receivable is not included in the amortized cost basis of Trustmark’s LHFI. At December 31, 2022 and 2021, accrued interest receivable for LHFI totaled $50.7 million and $26.7 million, respectively, with no related ACL and was reported in other assets on the accompanying consolidated balance sheet.

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, 2022, 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, 2022 and 2021, loans to certain executive officers and directors, including their immediate families and companies in which they are principal owners, totaled $47.0 million and $26.3 million, respectively. During 2022, $298.9 million of new loan advances were made, while repayments were $278.0 million. In addition, decreases in loans due to changes in executive officers and directors totaled $139 thousand.

Nonaccrual and Past Due LHFI

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, 2022.

The following tables provide the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more still accruing interest at December 31, 2022 and 2021 ($ in thousands):


	December 31, 2022
	Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Loans secured by real estate:
Construction, land development and other land	$	137	$	1,902	$	—
Other secured by 1-4 family residential properties		482		3,957		534
Secured by nonfarm, nonresidential properties		4,841		6,957		—
Other real estate secured		—		231		—
Other loans secured by real estate:
Other construction		—		7,620		—
Secured by 1-4 family residential properties		1,193		19,775		3,118
Commercial and industrial loans		14,441		25,102		—
Consumer loans		—		181		277
Other commercial loans		—		247		—
Total	$	21,094	$	65,972	$	3,929


	December 31, 2021
	Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Loans secured by real estate:
Construction, land development and other land	$	4,784	$	5,878	$	7
Other secured by 1-4 family residential properties		1,319		3,418		148
Secured by nonfarm, nonresidential properties		10,842		12,508		—
Other real estate secured		56		150		—
Other loans secured by real estate:
Other construction		—		—		—
Secured by 1-4 family residential properties		—		12,775		1,655
Commercial and industrial loans		1,363		19,328		—
Consumer loans		—		117		304
State and other political subdivision loans		—		3,664		—
Other commercial loans		4,405		4,860		—
Total	$	22,769	$	62,698	$	2,114

The following tables provide an aging analysis of the amortized cost basis of past due LHFI (including nonaccrual loans) at December 31, 2022 and 2021 ($ in thousands):


	December 31, 2022
	Past Due
					90 Days		Total		Current
	30-59 Days		60-89 Days		or More		Past Due		Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	1,972	$	199	$	34	$	2,205	$	688,411	$	690,616
Other secured by 1-4 family residential properties		3,682		1,206		1,281		6,169		584,621		590,790
Secured by nonfarm, nonresidential properties		825		18		794		1,637		3,277,193		3,278,830
Other real estate secured		131		30		—		161		742,377		742,538
Other loans secured by real estate:
Other construction		—		—		7,620		7,620		1,021,306		1,028,926
Secured by 1-4 family residential properties		10,709		4,236		9,999		24,944		2,160,113		2,185,057
Commercial and industrial loans		1,966		508		8,974		11,448		1,809,811		1,821,259
Consumer loans		2,199		645		279		3,123		167,107		170,230
State and other political subdivision loans		431		—		—		431		1,223,432		1,223,863
Other commercial loans		785		45		24		854		471,076		471,930
Total	$	22,700	$	6,887	$	29,005	$	58,592	$	12,145,447	$	12,204,039


	December 31, 2021
	Past Due
					90 Days		Total		Current
	30-59 Days		60-89 Days		or More		Past Due		Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	323	$	11	$	5,241	$	5,575	$	591,393	$	596,968
Other secured by 1-4 family residential properties		1,811		368		567		2,746		514,937		517,683
Secured by nonfarm, nonresidential properties		845		—		1,442		2,287		2,974,797		2,977,084
Other real estate secured		—		—		142		142		725,901		726,043
Other loans secured by real estate:
Other construction		—		—		—		—		711,813		711,813
Secured by 1-4 family residential properties		2,799		531		6,720		10,050		1,450,260		1,460,310
Commercial and industrial loans		607		41		1,107		1,755		1,412,524		1,414,279
Consumer loans		1,673		182		305		2,160		160,395		162,555
State and other political subdivision loans		32		—		177		209		1,146,042		1,146,251
Other commercial loans		220		32		118		370		534,473		534,843
Total	$	8,310	$	1,165	$	15,819	$	25,294	$	10,222,535	$	10,247,829

TDRs

At December 31, 2022, 2021 and 2020, LHFI classified as TDRs totaled $10.2 million, $21.6 million and $25.8 million, respectively, At December 31, 2022, LHFI classified as TDRs were primarily comprised of payment concessions and bankruptcies which totaled $9.7 million. At December 31, 2021, LHFI classified as TDRs were primarily comprised of bankruptcies, payment concessions and credits with interest-only payments for an extended period of time which totaled $18.2 million. At December 31, 2020, LHFI classified as TDRs were primarily comprised of credits with interest-only payments for an extended period of time, payment concessions and credits renewed at a rate that was not commensurate with that of new debt with similar risk which totaled $17.7 million. Trustmark had $9 thousand of unused commitments on TDRs at December 31, 2022, compared to $1.0 million of unused commitments on TDRs at December 31, 2021 and $4.5 million of unused commitments on TDRs at December 31, 2020.

At December 31, 2022, TDRs had a related ACL, LHFI of $203 thousand, compared to a related ACL, LHFI of $1.5 million and $2.4 million at December 31, 2021 and 2020, respectively. Specific charge-offs related to TDRs totaled $511 thousand, $3.7 million and $2.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The following tables illustrate the impact of modifications classified as TDRs for the periods presented ($ in thousands):


	Year Ended December 31, 2022
	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	$	146	$	146
Other secured by 1-4 family residential properties		4		321		314
Secured by nonfarm, nonresidential properties		5		6,603		6,601
Other real estate secured		1		85		85
Other loans secured by real estate:
Secured by 1-4 family residential properties		12		1,231		1,263
Commercial and industrial loans		1		500		500
Total		24	$	8,886	$	8,909


	Year Ended December 31, 2021
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Loans secured by real estate:
Construction, land development and other land		5	$	5,582	$	5,582
Other secured by 1-4 family residential properties		3		37		37
Secured by nonfarm, nonresidential properties		5		5,789		5,265
Other loans secured by real estate:
Secured by 1-4 family residential properties		8		909		906
Commercial and industrial loans		2		1,014		1,014
Consumer loans		1		6		6
Total		24	$	13,337	$	12,810


	Year Ended December 31, 2020
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Loans secured by real estate:
Other secured by 1-4 family residential properties		13	$	923	$	929
Secured by nonfarm, nonresidential properties		2		1,111		1,111
Commercial and industrial loans		4		1,665		1,664
Consumer loans		6		26		26
State and other political subdivision loans		2		3,902		3,872
Total		27	$	7,627	$	7,602

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 periods presented ($ in thousands):


	Years Ended December 31,
	2022				2021				2020
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Loans secured by real estate:
Construction, land development and other land loans		—	$	—		5	$	5,582		—	$	—
Other secured by 1-4 family residential properties		1		42		1		16		2		78
Secured by nonfarm, nonresidential properties		—		—		—		—		1		139
Other loans secured by real estate:
Secured by 1-4 family residential properties		—		—		1		78		—		—
Commercial and industrial loans		—		—		—		—		1		82
Total		1	$	42		7	$	5,676		4	$	299

Trustmark’s TDRs have resulted primarily from allowing the borrower to pay interest-only for an extended period of time and credits renewed at a rate that was not commensurate with that of new debt with similar risk 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 class at December 31, 2022, 2021 and 2020 ($ in thousands):


	December 31, 2022
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	1,564	$	1,564
Other secured by 1-4 family residential properties		193		823		1,016
Secured by nonfarm, nonresidential properties		98		4,015		4,113
Other real estate secured		—		68		68
Other loans secured by real estate:
Secured by 1-4 family residential properties		66		3,289		3,355
Commercial and industrial loans		—		45		45
Total TDRs	$	357	$	9,804	$	10,161


	December 31, 2021
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	4,640	$	4,640
Other secured by 1-4 family residential properties		—		965		965
Secured by nonfarm, nonresidential properties		394		7,325		7,719
Other loans secured by real estate:
Secured by 1-4 family residential properties		50		2,484		2,534
Commercial and industrial loans		2,000		215		2,215
Consumer loans		7		9		16
State and other political subdivision loans		—		3,486		3,486
Other commercial loans		—		36		36
Total TDRs	$	2,451	$	19,160	$	21,611


	December 31, 2020
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	12	$	12
Other secured by 1-4 family residential properties		—		3,699		3,699
Secured by nonfarm, nonresidential properties		—		3,903		3,903
Commercial and industrial loans		1,500		12,749		14,249
Consumer loans		6		17		23
State and other political subdivision loans		—		3,793		3,793
Other commercial loans		—		81		81
Total TDRs	$	1,506	$	24,254	$	25,760

Collateral-Dependent Loans

The following tables present the amortized cost basis of collateral-dependent loans by class of loans and collateral type at December 31, 2022 and 2021 ($ in thousands):


	December 31, 2022
	Real Estate		Inventory and Receivables		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and other land	$	1,558	$	—	$	—	$	—	$	1,558
Other secured by 1-4 family residential properties		482		—		—		—		482
Secured by nonfarm, nonresidential properties		4,841		—		—		—		4,841
Other loans secured by real estate:
Other construction		7,620		—		—		—		7,620
Secured by 1-4 family residential properties		1,193		—		—		—		1,193
Commercial and industrial loans		40		233		395		23,926		24,594
Total	$	15,734	$	233	$	395	$	23,926	$	40,288


	December 31, 2021
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and other land	$	5,198	$	—	$	—	$	—	$	—	$	5,198
Secured by nonfarm, nonresidential properties		11,072		—		—		—		—		11,072
Other real estate secured		56		—		—		—		—		56
Other loans secured by real estate:
Secured by 1-4 family residential properties		1,319		—		—		—		—		1,319
Commercial and industrial loans		42		349		1,253		370		16,430		18,444
State and other political subdivision loans		3,664		—		—		—		—		3,664
Other commercial loans		4,572		—		—		—		36		4,608
Total	$	25,923	$	349	$	1,253	$	370	$	16,466	$	44,361

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The following provides a qualitative description by class of loan of the collateral that secures Trustmark’s collateral-dependent LHFI:

•

Loans secured by real estate – Loans within these loan classes are secured by liens on real estate properties. There have been no significant changes to the collateral that secures these financial assets during the period.

•

Other loans secured by real estate – Loans within these loan classes are secured by liens on real estate properties. There have been no significant changes to the collateral that secures these financial assets during the period.

•

Commercial and industrial loans – Loans within this loan class are primarily secured by inventory, accounts receivables, equipment and other non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.

•

State and other political subdivision loans – Loans within this loan class are secured by liens on real estate properties or other non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.

•

Other commercial loans – Loans within this loan class are secured by non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.

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 segment 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 ensure 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 portfolio segment.

•

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 portfolio segment. 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 by each individual lending institution. The remaining credit risk grades are considered pass credits and are solely defined by Trustmark.

To enhance this process, Trustmark has determined that certain loans will be individually assessed, and a formal analysis will be performed and based upon the analysis the loan will be written down to net realizable value. Trustmark will individually assess and remove loans from the pool in the following circumstances:

•

Commercial nonaccrual loans with total exposure of $500 thousand (excluding those portions of the debt that are government guaranteed or are secured by Trustmark deposits or marketable securities) or more.

•

Any loan that is believed to not share similar risk characteristics with the rest of the pool will be individually assessed. Otherwise, the loan will be left within the pool based on the results of the assessment.

•

Commercial accruing loans deemed to be a TDR with total exposure of $500 thousand (excluding those portions of the debt that are government guaranteed or are secured by Trustmark deposits or marketable securities) or more. If the loan is believed to not share similar risk characteristics with the rest of the loan pool, the loan will be individually assessed. Otherwise, the loan will be left within the pool and monitored on an ongoing basis.

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 class as well as the adherence to Trustmark’s loan policy and the loan administration process.

100

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, periodic reviews of significant development, commercial construction, multi-family and nonowner-occupied projects are performed. These reviews assess 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. The Retail Credit Review Committee, Management Credit Policy Committee and the Directors Credit Policy Committee review the volume and/or percentage of approvals that did not meet the minimum passing custom score 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.

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans based on analyses performed at December 31, 2022 and 2021 ($ in thousands):


	Term Loans by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of December 31, 2022	Commercial LHFI
Loans secured by real estate:
Construction, land development and other land:
Pass - RR 1 through RR 6	$	363,824	$	119,727	$	29,632	$	3,405	$	1,016	$	2,364	$	64,953	$	584,921
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		146		199		—		1,415		—		—		44		1,804
Doubtful - RR 9		—		—		—		—		—		42		—		42
Total		363,970		119,926		29,632		4,820		1,016		2,406		64,997		586,767

Other secured by 1-4 family residential properties:
Pass - RR 1 through RR 6	$	41,996	$	33,346	$	17,215	$	9,341	$	6,798	$	2,870	$	12,209	$	123,775
Special Mention - RR 7		29		64		17		—		—		—		—		110
Substandard - RR 8		686		31		75		88		220		285		—		1,385
Doubtful - RR 9		15		—		—		—		—		—		—		15
Total		42,726		33,441		17,307		9,429		7,018		3,155		12,209		125,285

Secured by nonfarm, nonresidential properties:
Pass - RR 1 through RR 6	$	889,556	$	657,242	$	603,515	$	457,163	$	205,425	$	281,828	$	130,052	$	3,224,781
Special Mention - RR 7		10,284		—		—		271		—		—		—		10,555
Substandard - RR 8		12,034		1,066		9,457		905		706		18,488		693		43,349
Doubtful - RR 9		34		—		—		77		—		18		—		129
Total		911,908		658,308		612,972		458,416		206,131		300,334		130,745		3,278,814

Other real estate secured:
Pass - RR 1 through RR 6	$	293,051	$	156,386	$	143,114	$	107,827	$	11,297	$	17,626	$	12,516	$	741,817
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		30		—		309		—		5		68		126		538
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		293,081		156,386		143,423		107,827		11,302		17,694		12,642		742,355

101


	Term Loans by Origination Year
	2022		2021		2020			2019		2018		Prior		Revolving Loans		Total
As of December 31, 2022	Commercial LHFI
Other loans secured by real estate:
Other construction
Pass - RR 1 through RR 6	$	372,981	$	306,904	$	340,388		$	833	$	—	$	—	$	200	$	1,021,306
Special Mention - RR 7		—		—		—			—		—		—		—		—
Substandard - RR 8		—		7,620		—			—		—		—		—		7,620
Doubtful - RR 9		—		—		—			—		—		—		—		—
Total		372,981		314,524		340,388			833		—		—		200		1,028,926

Commercial and industrial loans:
Pass - RR 1 through RR 6	$	673,848	$	261,962	$	120,123		$	44,994	$	14,265	$	69,078	$	577,749	$	1,762,019
Special Mention - RR 7		—		—		12,421			—		—		—		6,454		18,875
Substandard - RR 8		6,973		9,845		2,170			312		74		—		20,625		39,999
Doubtful - RR 9		240		53		10			4		35		—		24		366
Total		681,061		271,860		134,724			45,310		14,374		69,078		604,852		1,821,259

State and other political subdivision loans:
Pass - RR 1 through RR 6	$	393,345	$	223,302	$	123,350		$	39,031	$	18,876	$	421,588	$	1,671	$	1,221,163
Special Mention - RR 7		—		—		—			—		—		2,700		—		2,700
Substandard - RR 8		—		—		—			—		—		—		—		—
Doubtful - RR 9		—		—		—			—		—		—		—		—
Total		393,345		223,302		123,350			39,031		18,876		424,288		1,671		1,223,863

Other commercial loans:
Pass - RR 1 through RR 6	$	88,763	$	40,006	$	28,239		$	37,607	$	6,424	$	10,829	$	244,882	$	456,750
Special Mention - RR 7		879		—		—			—		—		—		—		879
Substandard - RR 8		3,728		98		—			—		16		1,134		9,301		14,277
Doubtful - RR 9		24		—		—			—		—		—		—		24
Total		93,394		40,104		28,239	��		37,607		6,440		11,963		254,183		471,930

Total commercial LHFI	$	3,152,466	$	1,817,851	$	1,430,035		$	703,273	$	265,157	$	828,918	$	1,081,499	$	9,279,199

102


	Term Loans by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of December 31, 2022	Consumer LHFI
Loans secured by real estate:
Construction, land development and other land:
Current	$	62,049	$	32,867	$	3,304	$	1,759	$	1,679	$	1,915	$	—	$	103,573
Past due 30-89 days		—		150		—		36		15		9		—		210
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		58		—		—		—		8		—		66
Total		62,049		33,075		3,304		1,795		1,694		1,932		—		103,849

Other secured by 1-4 family residential properties:
Current	$	25,402	$	7,983	$	5,389	$	4,894	$	3,701	$	7,252	$	403,123	$	457,744
Past due 30-89 days		19		35		15		134		5		286		3,197		3,691
Past due 90 days or more		—		—		—		1		—		—		452		453
Nonaccrual		88		24		4		20		7		454		3,020		3,617
Total		25,509		8,042		5,408		5,049		3,713		7,992		409,792		465,505

Secured by nonfarm, nonresidential properties:
Current	$	—	$	16	$	—	$	—	$	—	$	—	$	—	$	16
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		16		—		—		—		—		—		16

Other real estate secured:
Current	$	—	$	—	$	89	$	—	$	5	$	89	$	—	$	183
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		—		89		—		5		89		—		183


	Term Loans by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of December 31, 2022	Consumer LHFI
Other loans secured by real estate:
Secured by 1-4 family residential properties
Current	$	939,511	$	559,804	$	198,769	$	109,466	$	80,249	$	262,196	$	—	$	2,149,995
Past due 30-89 days		3,967		3,752		2,119		425		—		1,906		—		12,169
Past due 90 days or more		835		777		272		—		134		1,100		—		3,118
Nonaccrual		2,363		4,180		3,275		1,896		2,028		6,033		—		19,775
Total		946,676		568,513		204,435		111,787		82,411		271,235		—		2,185,057

Consumer loans:
Current	$	70,858	$	25,771	$	9,514	$	2,509	$	1,513	$	295	$	56,508	$	166,968
Past due 30-89 days		1,431		238		159		8		23		10		946		2,815
Past due 90 days or more		28		12		7		1		2		—		216		266
Nonaccrual		79		41		19		17		4		—		21		181
Total		72,396		26,062		9,699		2,535		1,542		305		57,691		170,230

Total consumer LHFI	$	1,106,630	$	635,708	$	222,935	$	121,166	$	89,365	$	281,553	$	467,483	$	2,924,840

Total LHFI	$	4,259,096	$	2,453,559	$	1,652,970	$	824,439	$	354,522	$	1,110,471	$	1,548,982	$	12,204,039

103


	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans			Total
As of December 31, 2021	Commercial LHFI
Loans secured by real estate:
Construction, land development and other land:
Pass - RR 1 through RR 6	$	376,438	$	76,176	$	21,366	$	2,189	$	1,367	$	2,890	$	26,505		$	506,931
Special Mention - RR 7		71		6,382		—		—		—		—		—			6,453
Substandard - RR 8		2,243		—		3,435		30		—		—		—			5,708
Doubtful - RR 9		—		—		—		—		—		42		—			42
Total		378,752		82,558		24,801		2,219		1,367		2,932		26,505	��		519,134

Other secured by 1-4 family residential properties:
Pass - RR 1 through RR 6	$	44,208	$	23,269	$	13,194	$	9,722	$	5,737	$	3,076	$	8,771		$	107,977
Special Mention - RR 7		111		143		—		—		—		—		—			254
Substandard - RR 8		721		150		6		166		46		627		—			1,716
Doubtful - RR 9		22		—		—		—		—		—		—			22
Total		45,062		23,562		13,200		9,888		5,783		3,703		8,771			109,969

Secured by nonfarm, nonresidential properties:
Pass - RR 1 through RR 6	$	750,869	$	604,026	$	610,446	$	350,603	$	183,115	$	279,529	$	113,808		$	2,892,396
Special Mention - RR 7		1,510		9,584		412		—		1,562		4,522		—			17,590
Substandard - RR 8		11,017		2,357		13,609		3,591		5,988		29,309		1,025			66,896
Doubtful - RR 9		43		—		105		—		—		21		—			169
Total		763,439		615,967		624,572		354,194		190,665		313,381		114,833			2,977,051

Other real estate secured:
Pass - RR 1 through RR 6	$	256,273	$	105,687	$	220,487	$	64,268	$	6,816	$	56,196	$	13,350		$	723,077
Special Mention - RR 7		—		—		—		—		—		773		—			773
Substandard - RR 8		1,684		65		—		8		—		101		—			1,858
Doubtful - RR 9		—		—		—		—		—		—		—			—
Total		257,957		105,752		220,487		64,276		6,816		57,070		13,350			725,708

104


	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of December 31, 2021	Commercial LHFI
Other loans secured by real estate:
Other construction
Pass - RR 1 through RR 6	$	273,747	$	393,580	$	25,142	$	—	$	—	$	—	$	17,909	$	710,378
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		1,435		—		—		—		—		—		—		1,435
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		275,182		393,580		25,142		—		—		—		17,909		711,813

Commercial and industrial loans:
Pass - RR 1 through RR 6	$	503,073	$	249,171	$	74,239	$	33,403	$	50,016	$	35,883	$	400,423	$	1,346,208
Special Mention - RR 7		643		365		147		550		48		—		99		1,852
Substandard - RR 8		14,530		1,338		1,221		1,119		9,237		386		38,182		66,013
Doubtful - RR 9		20		46		29		107		—		4		—		206
Total		518,266		250,920		75,636		35,179		59,301		36,273		438,704		1,414,279

State and other political subdivision loans:
Pass - RR 1 through RR 6	$	381,317	$	148,156	$	56,987	$	30,558	$	95,491	$	418,319	$	8,409	$	1,139,237
Special Mention - RR 7		—		—		—		—		—		3,350		—		3,350
Substandard - RR 8		—		—		—		—		—		3,664		—		3,664
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		381,317		148,156		56,987		30,558		95,491		425,333		8,409		1,146,251

Other commercial loans:
Pass - RR 1 through RR 6	$	103,504	$	38,661	$	64,871	$	8,643	$	7,924	$	41,112	$	232,476	$	497,191
Special Mention - RR 7		4,059		—		—		—		—		—		9,013		13,072
Substandard - RR 8		4,532		6,681		82		212		—		—		13,000		24,507
Doubtful - RR 9		—		50		—		—		—		23		—		73
Total		112,095		45,392		64,953		8,855		7,924		41,135		254,489		534,843

Total commercial LHFI	$	2,732,070	$	1,665,887	$	1,105,778	$	505,169	$	367,347	$	879,827	$	882,970	$	8,139,048

105


	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of December 31, 2021	Consumer LHFI
Loans secured by real estate:
Construction, land development and other land:
Current	$	51,849	$	16,204	$	3,024	$	3,059	$	797	$	2,404	$	—	$	77,337
Past due 30-89 days		—		265		49		5		—		14		—		333
Past due 90 days or more		—		—		—		—		—		7		—		7
Nonaccrual		64		—		—		—		—		93		—		157
Total		51,913		16,469		3,073		3,064		797		2,518		—		77,834

Other secured by 1-4 family residential properties:
Current	$	21,166	$	11,098	$	6,119	$	5,903	$	3,291	$	7,853	$	347,743	$	403,173
Past due 30-89 days		5		34		87		114		—		145		1,214		1,599
Past due 90 days or more		—		4		—		—		—		13		91		108
Nonaccrual		26		70		29		9		341		274		2,085		2,834
Total		21,197		11,206		6,235		6,026		3,632		8,285		351,133		407,714

Secured by nonfarm, nonresidential properties:
Current	$	31	$	—	$	—	$	—	$	2	$	—	$	—	$	33
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		31		—		—		—		2		—		—		33

Other real estate secured:
Current	$	—	$	97	$	—	$	8	$	60	$	170	$	—	$	335
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		97		—		8		60		170		—		335


	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of December 31, 2021	Consumer LHFI
Other loans secured by real estate:
Secured by 1-4 family residential properties
Current	$	622,330	$	233,951	$	137,500	$	107,345	$	56,374	$	285,919	$	—	$	1,443,419
Past due 30-89 days		542		494		333		10		369		714		—		2,462
Past due 90 days or more		199		501		165		122		218		450		—		1,655
Nonaccrual		272		1,875		1,419		2,105		916		6,187		—		12,774
Total		623,343		236,821		139,417		109,582		57,877		293,270		—		1,460,310

Consumer loans:
Current	$	65,366	$	25,512	$	8,498	$	4,734	$	1,289	$	378	$	54,518	$	160,295
Past due 30-89 days		989		223		123		22		10		5		468		1,840
Past due 90 days or more		26		23		6		—		—		—		248		303
Nonaccrual		71		17		2		13		8		—		6		117
Total		66,452		25,775		8,629		4,769		1,307		383		55,240		162,555

Total consumer LHFI	$	762,936	$	290,368	$	157,354	$	123,449	$	63,675	$	304,626	$	406,373	$	2,108,781

Total LHFI	$	3,495,006	$	1,956,255	$	1,263,132	$	628,618	$	431,022	$	1,184,453	$	1,289,343	$	10,247,829

Past Due LHFS

LHFS past due 90 days or more totaled $49.3 million and $69.9 million at December 31, 2022 and 2021, respectively.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during 2022 or 2021.

106

ACL, LHFI

Trustmark’s ACL methodology for LHFI is based upon guidance within FASB ASC Subtopic 326-20 as well as applicable regulatory guidance. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the LHFI portfolio is continuously monitored by Management and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within Trustmark’s existing LHFI portfolio. The ACL for LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. In estimating the ACL for the collective component, loans are segregated into loan pools based on loan product types and similar risk characteristics.

The loans secured by real estate and other loans secured by real estate portfolio segments include loans for both commercial and residential properties. The underwriting process for these loans includes analysis of the financial position and strength of both the borrower and guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral, availability of permanent financing, maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type. The borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting. Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance in addition to analysis of the proposed project for income-producing properties. Additional support offered by guarantors is also considered. Ultimate repayment of these loans is sensitive to interest rate changes, general economic conditions, liquidity and availability of long-term financing.

The commercial and industrial LHFI portfolio segment includes loans within Trustmark’s geographic markets made to many types of businesses for various purposes, such as short-term working capital loans that are usually secured by accounts receivable and inventory and term financing for equipment and fixed asset purchases that are secured by those assets. Trustmark’s credit underwriting process for commercial and industrial loans includes analysis of historical and projected cash flows and performance, evaluation of financial strength of both borrowers and guarantors as reflected in current and detailed financial information and evaluation of underlying collateral to support the credit.

The consumer LHFI portfolio segment is comprised of loans that are centrally underwritten based on a credit scoring system as well as an evaluation of the borrower’s repayment capacity, credit, and collateral. Property appraisals are obtained to assist in evaluating collateral. Loan-to-value and debt-to-income ratios, loan amount, and lien position are also considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends such as conditions that negatively affect housing prices and demand and levels of unemployment.

The state and other political subdivision LHFI and the other commercial LHFI portfolio segments primarily consist of loans to non-depository financial institutions, such as mortgage companies, finance companies and other financial intermediaries, loans to state and political subdivisions, and loans to non-profit and charitable organizations. These loans are underwritten based on the specific nature or purpose of the loan and underlying collateral with special consideration given to the specific source of repayment for the loan.

107

The following table provides a description of each of Trustmark’s portfolio segments, loan classes, loan pools and the ACL methodology and loss drivers:


Portfolio Segment	~~LEGAL PROCEEDINGS~~	Loan Class	Loan Pool	Methodology	Loss Drivers
Loans secured by real estate		Construction, land development and other land	1-4 family residential construction	DCF	Prime Rate, National GDP
			Lots and development	DCF	Prime Rate, Southern Unemployment
			Unimproved land	DCF	Prime Rate, Southern Unemployment
			All other consumer	DCF	Southern Unemployment
		Other secured by 1-4 family residential properties	Consumer 1-4 family - 1st liens	DCF	Prime Rate, Southern Unemployment
			All other consumer	DCF	Southern Unemployment
			Nonresidential owner-occupied	DCF	Southern Unemployment, National GDP
		Secured by nonfarm, nonresidential properties	Nonowner-occupied - hotel/motel	DCF	Southern Vacancy Rate, Southern Unemployment
			Nonowner-occupied - office	DCF	Southern Vacancy Rate, Southern Unemployment
			Nonowner-occupied- Retail	DCF	Southern Vacancy Rate, Southern Unemployment
			Nonowner-occupied - senior living/nursing homes	DCF	Southern Vacancy Rate, Southern Unemployment
			Nonowner-occupied - all other	DCF	Southern Vacancy Rate, Southern Unemployment
			Nonresidential owner-occupied	DCF	Southern Unemployment, National GDP
		Other real estate secured	Nonresidential nonowner -occupied - apartments	DCF	Southern Vacancy Rate, Southern Unemployment
			Nonresidential owner-occupied	DCF	Southern Unemployment, National GDP
			Nonowner-occupied - all other	DCF	Southern Vacancy Rate, Southern Unemployment
Other loans secured by real estate		Other construction	Other construction	DCF	Prime Rate, National Unemployment
		Secured by 1-4 family residential properties	Trustmark mortgage	WARM	Southern Unemployment
Commercial and industrial loans		Commercial and industrial loans	Commercial and industrial - non-working capital	DCF	Trustmark historical data
			Commercial and industrial - working capital	DCF	Trustmark historical data
			Credit cards	WARM	Trustmark call report data
Consumer loans		Consumer loans	Credit cards	WARM	Trustmark call report data
			Overdrafts	Loss Rate	Trustmark historical data
			All other consumer	DCF	Southern Unemployment
State and other political subdivision loans		State and other political subdivision loans	Obligations of state and political subdivisions	DCF	Moody's Bond Default Study
Other commercial loans		Other commercial loans	Other loans	DCF	Prime Rate, Southern Unemployment
			Commercial and industrial - non-working capital	DCF	Trustmark historical data
			Commercial and industrial - working capital	DCF	Trustmark historical data

In general, Trustmark utilizes a DCF method to estimate the quantitative portion of the ACL for loan pools. The DCF model consists of two key components, a loss driver analysis (LDA) and a cash flow analysis. For loan pools utilizing the DCF methodology, multiple assumptions are in place, depending on the loan pool. A reasonable and supportable forecast is utilized for each loan pool by developing a LDA for each loan class. The LDA uses charge off data from Federal Financial Institutions Examination Council (FFIEC) reports to construct a periodic default rate (PDR). The PDR is decomposed into a PD. Regressions are run using the data for various macroeconomic variables in order to determine which ones correlate to Trustmark’s losses. These variables are then incorporated into the application to calculate a quarterly PD using a third-party baseline forecast. In addition to the PD, a LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the levels of PD forecasts. This model approach is applicable to all pools within the construction, land development and other land, other secured by 1-4 family residential properties, secured by nonfarm, nonresidential properties and other real estate secured loan classes as well as the all other consumer and other loans pools.

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During the first quarter of 2022, Management elected to incorporate a methodology change related to the other construction pool. Components of this change include management utilizing an alternative LDA to support the PD and LGD assumptions necessary to apply a DCF methodology to the other construction pool. Fundamentally, this approach utilizes publicly reported default balances and leverages a generalized linear model (GLM) framework to estimate PD. Taken together, these differences allow for results to be scaled to be specific and directly applicable to the other construction segment. LGD is assumed to be a through-the-cycle constant based on the actual performance of Trustmark’s other construction segment. These assumptions are then input into the DCF model and used in conjunction with prepayment data to calculate the cash flows at the individual loan level. Previously, the other construction pool used the weighted average remaining maturity (WARM) method. Management believes this change is commensurate with the level of risk in the pool.

For the commercial and industrial loans related pools, Trustmark uses its own PD and LGD data, instead of the macroeconomic variables and the Frye Jacobs method described above, to calculate the PD and LGD as there were no defensible macroeconomic variables that correlated to Trustmark’s losses. Trustmark utilizes a third-party Bond Default Study to derive the PD and LGD for the obligations of state and political subdivisions pool. Due to the lack of losses within this pool, no defensible macroeconomic factors were identified to correlate.

The PD and LGD measures are used in conjunction with prepayment data as inputs into the DCF model to calculate the cash flows at the individual loan level. Contractual cash flows based on loan terms are adjusted for PD, LGD and prepayments to derive loss cash flows. These loss cash flows are discounted by the loan’s coupon rate to arrive at the discounted cash flow based quantitative loss. The prepayment studies are updated quarterly by a third-party for each applicable pool.

An alternate method of estimating the ACL is used for certain loan pools due to specific characteristics of these loans. For the non-DCF pools, specifically, those using the WARM method, the remaining life is incorporated into the ACL quantitative calculation.

Trustmark determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Trustmark uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans. The econometric models currently in production reflect segment or pool level sensitivities of PD to changes in macroeconomic variables. By measuring the relationship between defaults and changes in the economy, the quantitative reserve incorporates reasonable and supportable forecasts of future conditions that will affect the value of its assets, as required by FASB ASC Topic 326. Under stable forecasts, these linear regressions will reasonably predict a pool’s PD. However, due to the COVID-19 pandemic, the macroeconomic variables used for reasonable and supportable forecasting changed rapidly. At the current levels, it is not clear that the models currently in production will produce reasonably representative results since the models were originally estimated using data beginning in 2004 through 2019. During this period, a traditional, albeit severe, economic recession occurred. Thus, econometric models are sensitive to similar future levels of PD.

In order to prevent the econometric models from extrapolating beyond reasonable boundaries of their input variables, Trustmark chose to establish an upper and lower limit process when applying the periodic forecasts. In this way, Management will not rely upon unobserved and untested relationships in the setting of the quantitative reserve. This approach applies to all input variables, including: Southern Unemployment, National Unemployment, National Gross Domestic Product (GDP), Southern Vacancy Rate and the Prime Rate. The upper and lower limits are based on the distribution of the macroeconomic variable by selecting extreme percentiles at the upper and lower limits of the distribution, the 1st and 99th percentiles, respectively. These upper and lower limits are then used to calculate the PD for the forecast time period in which the forecasted values are outside of the upper and lower limit range. Due to multiple periods having a PD or LGD at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on Trustmark’s historical loss experience and applied at a portfolio level.

Qualitative factors used in the ACL methodology include the following:

•

Lending policies and procedures

•

Economic conditions and concentrations of credit

•

Nature and volume of the portfolio

•

Performance trends

•

External factors

While all these factors are incorporated into the overall methodology, only four are currently considered active: (i) economic conditions and concentrations of credit, (ii) nature and volume of the portfolio, (iii) performance trends and (iv) external factors.

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Two of Trustmark’s largest loan classes are the loans secured by nonfarm, nonresidential properties and the loans secured by other real estate. Trustmark elected to create a qualitative factor specifically for these loan classes which addresses changes in the economic conditions of metropolitan areas and applies additional pool level reserves. This qualitative factor is based on third-party market data and forecast trends and is updated quarterly as information is available, by market and by loan pool.

For the performance trends factor, Trustmark uses migration analyses to allocate additional ACL to non-pass/delinquent loans within each pool. In this way, Management believes the ACL will directly reflect changes in risk, based on the performance of the loans within a pool, whether declining or improving.

The nature and volume of the portfolio qualitative factor utilizes peer and industry assumptions for pools of loans where Trustmark’s historical experience might not capture the risk associated within a specific pool due to it being a different type of lending, different sources of repayment or a new line of business.

The external factors qualitative factor is Management’s best judgement on the loan or pool level impact of all factors that affect the portfolio that are not accounted for using any other part of the ACL methodology (e.g., natural disasters, changes in legislation, impacts due to technology and pandemics). Trustmark's External Factor – Pandemic ensures reserve adequacy for collectively evaluated loans most likely to be impacted by the unique economic and behavioral conditions created by the COVID-19 pandemic. Additional qualitative reserves are derived based on two principles. The first is the disconnect of economic factors to Trustmark’s modeled PD (derived from the econometric models underpinning the quantitative pooled reserves). During the pandemic, extraordinary measures by the federal government were made available to consumers and businesses, including COVID-19 loan payment concessions, direct transfer payments to households, tax deferrals, and reduced interest rates, among others. These government interventions may have extended the lag between economic conditions and default, relative to what was captured in the model development data. Because Trustmark’s econometric PD models rely on the observed relationship from the economic downturn from 2007 to 2009 in both timing and severity, Management does not expect the models to reflect these current conditions. For example, while the models would predict contemporaneous unemployment peaks and loan defaults, this may not occur when borrowers can request payment deferrals. Thus, for the affected population, economic conditions are not fully considered as a part of Trustmark’s quantitative reserve. The second principle is the change in risk that is identified by rating changes. As a part of Trustmark’s credit review process, loans in the affected population have been given more frequent screening to ensure accurate ratings are maintained through this dynamic period. Trustmark’s quantitative reserve does not directly address changes in ratings, thus a migration qualitative factor was designed to work in concert with the quantitative reserve.

As discussed above, the disconnect of economic factors means that changes in rating caused by deteriorating and weak economic conditions as a result of the pandemic were not being captured in the quantitative reserve. During 2020, due to unforeseen pandemic conditions that varied from Management’s expectations, additional reserves were further dimensioned in order to appropriately reflect the risk within the portfolio related to the COVID-19 pandemic. In an effort to ensure the External Factor-Pandemic qualitative factor is reasonable and supportable, historical Trustmark loss data was leveraged to construct a framework that is quantitative in nature. To dimension the additional reserve, Management uses the sensitivity of the quantitative commercial loan reserve to changes in macroeconomic conditions to apply to loans rated acceptable or better (RR 1-4). In addition, to account for the known changes in risk, a weighted average of the commercial loan portfolio loss rate, derived from the performance trends qualitative factor, is used to dimension additional reserves for downgraded credits. Loans rated acceptable with risk (RR 5) or watch (RR 6) received the additional reserves based on the average of the macroeconomic conditions and weighted-average of the commercial loan portfolio loss rate while the loans rated special mention and substandard received additional reserves based on the weighted-average described above. During the fourth quarter of 2022, Management noted that all pass rated loans (RR 5 & RR 6) related to the External Factor-Pandemic qualitative factor either did not experience significant stress related to the pandemic or have since recovered and does not expect future stresses attributed to the pandemic that may affect these loans. As a result, Management decided to accelerate the release of the additional pandemic reserves on all pass rated loans.

During the first quarter of 2022, in order to account for the potential uncertainty related to higher prices and low economic growth, Trustmark chose to enact a portion of the qualitative framework, External Factor - Stagflation. Management calculated the reserve using a third-party stagflation forecast and compared it to the third-party baseline forecast used in the quantitative modeling. The weighted differential is added as qualitative reserves to account for potential uncertainty. During the fourth quarter of 2022, Management determined that the likelihood of a stagflation scenario had sufficiently diminished. Management identified that the potential had already been reduced and effectively captured within a nominally more negative baseline economic forecast. As a result, Management elected to resolve the External Factor - Stagflation and fully release the reserves.

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The following tables disaggregate the ACL, LHFI and the amortized cost basis of the loans by the measurement methodology used at December 31, 2022 and 2021 ($ in thousands):


	Year Ended December 31, 2022
	ACL						LHFI
	Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total ACL		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	121	$	12,707	$	12,828	$	1,558		689,058	$	690,616
Other secured by 1-4 family residential properties		—		12,374		12,374		482		590,308		590,790
Secured by nonfarm, nonresidential properties		—		19,488		19,488		4,841		3,273,989		3,278,830
Other real estate secured		—		4,743		4,743		—		742,538		742,538
Other loans secured by real estate:
Other construction		7,620		7,512		15,132		7,620		1,021,306		1,028,926
Secured by 1-4 family residential properties		—		21,185		21,185		1,193		2,183,864		2,185,057
Commercial and industrial loans		9,946		13,194		23,140		24,594		1,796,665		1,821,259
Consumer loans		—		5,792		5,792		—		170,230		170,230
State and other political subdivision loans		—		885		885		—		1,223,863		1,223,863
Other commercial loans		—		4,647		4,647		—		471,930		471,930
Total	$	17,687	$	102,527	$	120,214	$	40,288	$	12,163,751	$	12,204,039


	December 31, 2021
	ACL						LHFI
	Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total
Loans secured by real estate:
Construction, land development and other land	$	278	$	5,801	$	6,079	$	5,198	$	591,770	$	596,968
Other secured by 1-4 family residential properties		—		10,310		10,310		—		517,683		517,683
Secured by nonfarm, nonresidential properties		—		37,912		37,912		11,072		2,966,012		2,977,084
Other real estate secured		—		4,713		4,713		56		725,987		726,043
Other loans secured by real estate:
Other construction		—		5,968		5,968		—		711,813		711,813
Secured by 1-4 family residential properties		—		2,706		2,706		1,319		1,458,991		1,460,310
Commercial and industrial loans		5,750		13,189		18,939		18,444		1,395,835		1,414,279
Consumer loans		—		4,774		4,774		—		162,555		162,555
State and other political subdivision loans		1,394		1,314		2,708		3,664		1,142,587		1,146,251
Other commercial loans		203		5,145		5,348		4,608		530,235		534,843
Total	$	7,625	$	91,832	$	99,457	$	44,361	$	10,203,468	$	10,247,829

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


	Years Ended December 31,
	2022			2021			2020
Balance at beginning of period	$	99,457		$	117,306		$	84,277
FASB ASU 2016-13 adoption adjustments:
LHFI		—			—			(3,039	)
Allowance for loan losses, acquired loans transfer		—			—			815
Acquired loans ACL adjustment		—			—			1,007
Loans charged-off		(11,332	)		(10,275	)		(11,475	)
Recoveries		10,412			13,925			9,608
Net (charge-offs) recoveries		(920	)		3,650			(1,867	)
PCL, LHFI		21,677			(21,499	)		36,113
Balance at end of period	$	120,214		$	99,457		$	117,306

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The following tables detail changes in the ACL, LHFI by loan class for the years ended December 31, 2022 and 2021 ($ in thousands):


	2022
	Balance										Balance
	January 1,		Charge-offs			Recoveries		PCL			December 31,
Loans secured by real estate:
Construction, land development and other land	$	6,079	$	(226	)	$	1,280	$	5,695		$	12,828
Other secured by 1-4 family residential properties		10,310		(225	)		597		1,692			12,374
Secured by nonfarm, nonresidential properties		37,912		(306	)		1,724		(19,842	)		19,488
Other real estate secured		4,713		(131	)		14		147			4,743
Other loans secured by real estate:
Other construction		5,968		(153	)		222		9,095			15,132
Secured by 1-4 family residential properties		2,706		(154	)		167		18,466			21,185
Commercial and industrial loans		18,939		(671	)		955		3,917			23,140
Consumer loans		4,774		(2,125	)		1,563		1,580			5,792
State and other political subdivision loans		2,708		—			—		(1,823	)		885
Other commercial loans		5,348		(7,341	)		3,890		2,750			4,647
Total	$	99,457	$	(11,332	)	$	10,412	$	21,677		$	120,214

The increases in the PCL, LHFI for the year ended December 31, 2022 were primarily due to loan growth, the weakening of the macroeconomic forecast and the nature and volume of the portfolio.

The decrease in the PCL, LHFI for the secured by nonfarm, nonresidential properties portfolio for the year ended December 31, 2022 was primarily due to adjustments to the External Factor - Pandemic qualitative factor. The decrease in the PCL, LHFI for the state and other political subdivision loans portfolio was due to the release of specific reserves on individually analyzed credits coupled with the adjustments to the External Factor - Pandemic qualitative factor and routine modeling assumption updates.


	2021

	Balance January 1,		Charge-offs			Recoveries		PCL			Balance December 31,
Loans secured by real estate:
Construction, land development and other land	$	6,854	$	(39	)	$	1,564	$	(2,300	)	$	6,079
Other secured by 1-4 family residential properties		9,928		(109	)		505		(14	)		10,310
Secured by nonfarm, nonresidential properties		48,523		(169	)		1,245		(11,687	)		37,912
Other real estate secured		7,382		—			20		(2,689	)		4,713
Other loans secured by real estate:
Other construction		8,158		—			47		(2,237	)		5,968
Secured by 1-4 family residential properties		5,143		(177	)		128		(2,388	)		2,706
Commercial and industrial loans		14,851		(4,391	)		4,727		3,752			18,939
Consumer loans		5,838		(1,640	)		1,665		(1,089	)		4,774
State and other political subdivision loans		3,190		—			—		(482	)		2,708
Other commercial loans		7,439		(3,750	)		4,024		(2,365	)		5,348
Total	$	117,306	$	(10,275	)	$	13,925	$	(21,499	)	$	99,457

The increase in the PCL, LHFI for the commercial and industrial loan portfolio for the year ended December 31, 2021 was primarily due to specific reserves for individually analyzed credits.

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The PCL, LHFI for loans secured by real estate, other loans secured by real estate, state and other political subdivision loans and other commercial loans decreased during the year ended December 31, 2021 primarily due to improvements in the macroeconomic forecast and credit quality.

Note 5 – Premises and Equipment, Net

At December 31, 2022 and 2021, premises and equipment, net consisted of the following ($ in thousands):


	December 31,
	2022		2021
Land	$	54,300	$	54,342
Buildings and leasehold improvements		237,215		221,986
Furniture and equipment		198,698		190,907
Total cost of premises and equipment		490,213		467,235
Less accumulated depreciation and amortization		282,385		271,334
Premises and equipment, net		207,828		195,901
Finance lease right-of-use assets		4,537		6,017
Assets held for sale		—		3,726
Total premises and equipment, net	$	212,365	$	205,644

There were no properties included in assets held for sale at December 31, 2022 compared to two properties at December 31, 2021. These properties were transferred from premises and equipment, net to assets held for sale due to Trustmark’s intent to sell the properties over the subsequent twelve months as a result of its strategic initiatives. Property valuation adjustments of $400 thousand were recognized and included in other expense for 2022 compared to $140 thousand for 2021 and $1.7 million for 2020.

Depreciation and amortization of premises and equipment totaled $16.2 million in 2022, $15.6 million in 2021 and $14.8 million in 2020.

Note 6 – Mortgage Banking

MSR

The activity in the MSR is detailed in the table below for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021
Balance at beginning of period	$	87,687		$	66,464
Origination of servicing assets		17,843			28,125
Change in fair value:
Due to market changes		38,181			13,258
Due to runoff		(14,034	)		(20,160	)
Balance at end of period	$	129,677		$	87,687

Trustmark determines the fair value of the MSR using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. Trustmark considers the conditional prepayment rate (CPR), which is an estimated loan prepayment rate that uses historical prepayment rates for previous loans similar to the loans being evaluated, the float rate, which is the interest rate earned on escrow balances, and the discount rate as some of the primary assumptions used in determining the fair value of the MSR. An increase in either the CPR or discount rate assumption will result in a decrease in the fair value of the MSR, while a decrease in either assumption will result in an increase in the fair value of the MSR. An increase in the float rate will result in an increase in the fair value of the MSR, while a decrease in the float rate will result in a decrease in the fair value of the MSR. At December 31, 2022, the fair value of the MSR included an assumed average prepayment speed of 8 CPR and an average discount rate of 10.08% compared to an assumed average prepayment speed of 12 CPR and an average discount rate of 9.56% at December 31, 2021.

Mortgage Loans Sold/Serviced

During 2022, 2021 and 2020, Trustmark sold $1.243 billion, $2.286 billion and $2.532 billion, respectively, of residential mortgage loans. Gain on sales of loans, net totaled $20.2 million in 2022, $56.0 million in 2021 and $110.9 million in 2020. Trustmark receives annual servicing fee income approximating 0.32% of the outstanding balance of the underlying loans, which totaled $26.0 million in 2022, $25.1 million in 2021 and $23.3 million in 2020. The gains on the sale of residential mortgage loans and the annual servicing fee

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are both recorded to noninterest income in mortgage banking, net in the accompanying consolidated statements of income. The investors and the securitization trusts have no recourse to the assets of Trustmark for failure of debtors to pay when due.

The table below details the mortgage loans sold and serviced for others at December 31, 2022 and 2021 ($ in thousands):


	December 31,
	2022		2021
Federal National Mortgage Association	$	4,684,815	$	4,709,584
Government National Mortgage Association		3,350,222		3,194,373
Federal Home Loan Mortgage Corporation		52,023		35,971
Other		28,764		13,272
Total mortgage loans sold and serviced for others	$	8,115,824	$	7,953,200

Trustmark is subject to losses in its loan servicing portfolio due to loan foreclosures. Trustmark has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold was in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation, loans that do not meet investor guidelines, loans in which the appraisal does not support the value and/or loans obtained through fraud by the borrowers or other third parties. Generally, putback requests may be made until the loan is paid in full. However, mortgage loans delivered to Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) on or after January 1, 2013 are subject to the Representations and Warranties Framework, which provides that FNMA and FHLMC will not exercise their remedies, including a putback request, for breaches of certain selling representations and warranties if the mortgage loans satisfy certain criteria, such as payment history or quality control review.

When a putback request is received, Trustmark evaluates the request and takes appropriate actions based on the nature of the request. Trustmark is required by FNMA and FHLMC to provide a response to putback requests within 60 days of the date of receipt. The total mortgage loan servicing putback expenses were included in other expense. At both December 31, 2022 and 2021, Trustmark had a reserve for mortgage loan servicing putback expenses of $500 thousand.

There is inherent uncertainty in reasonably estimating the requirement for reserves against potential future mortgage loan servicing putback expenses. Future putback expenses are dependent on many subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties. Trustmark believes that it has appropriately reserved for potential mortgage loan servicing putback requests.

Note 7 – Goodwill and Identifiable Intangible Assets

Goodwill

The table below illustrates goodwill by segment for the years ended December 31, 2022 and 2021 ($ in thousands):


	General
	Banking		Insurance			Total
Balance as of January 1, 2021	$	334,603	$	50,667		$	385,270
Adjustment during 2021		—		(1,033	)		(1,033	)
Balance as of December 31, 2021		334,603		49,634			384,237
Adjustment during 2022		—		—			—
Balance as of December 31, 2022	$	334,603	$	49,634		$	384,237

Trustmark’s General Banking Segment delivers a full range of banking services to consumer, corporate, small and middle-market businesses through its extensive branch network. The Insurance Segment includes TNB’s wholly-owned retail insurance subsidiary that offers a diverse mix of insurance products and services. Trustmark performed goodwill impairment tests for the General Banking and Insurance Segments during 2022, 2021 and 2020. Based on these tests, Trustmark concluded that the fair value of both the General Banking and Insurance Segments exceeded the book value and no impairment charge was required.

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Identifiable Intangible Assets

At December 31, 2022 and 2021, identifiable intangible assets consisted of the following ($ in thousands):


	December 31, 2022						December 31, 2021
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Core deposit intangibles	$	87,674	$	87,199	$	475	$	87,674	$	86,280	$	1,394
Insurance intangibles		17,272		14,157		3,115		17,272		13,709		3,563
Banking charters		1,325		1,275		50		1,325		1,208		117
Total	$	106,271	$	102,631	$	3,640	$	106,271	$	101,197	$	5,074

Trustmark recorded $1.4 million of amortization of identifiable intangible assets in 2022, $2.3 million in 2021 and $3.1 million in 2020. Trustmark estimates that amortization expense for identifiable intangible assets will be $674 thousand in 2023, $472 thousand in 2024, $403 thousand in 2025, $341 thousand in 2026 and $283 thousand in 2027. Trustmark continually evaluates whether events and circumstances have occurred that indicate that identifiable intangible assets have become impaired. Measurement of any impairment of such identifiable intangible assets is based on the fair values of those assets. There were no impairment losses on identifiable intangible assets recorded during 2022, 2021 or 2020.

The following table illustrates the carrying amounts and remaining weighted-average amortization periods of identifiable intangible assets at December 31, 2022 ($ in thousands):


			Remaining
			Weighted-
			Average
	Net Carrying		Amortization
	Amount		Period in Years
Core deposit intangibles	$	475		3.4
Insurance intangibles		3,115		15.8
Banking charters		50		0.8
Total	$	3,640		14.0

Note 8 – Other Real Estate

At December 31, 2022, Trustmark’s geographic other real estate distribution was primarily concentrated in its Mississippi market region. The ultimate recovery of a substantial portion of the carrying amount of other real estate is susceptible to changes in market conditions in this area.

For the periods presented, changes and gains (losses), net on other real estate were as follows ($ in thousands):


	Years Ended December 31,
	2022			2021			2020
Balance at beginning of period	$	4,557		$	11,651		$	29,248
Additions		1,533			770			635
Disposals		(4,142	)		(6,932	)		(16,446	)
(Write-downs) recoveries		38			(932	)		(1,786	)
Balance at end of period	$	1,986		$	4,557		$	11,651

Gains (losses), net on the sale of other real estate included in other real estate expense	$	(1,006	)	$	(1,869	)	$	897

At December 31, 2022 and 2021, other real estate by type of property consisted of the following ($ in thousands):


	December 31,
	2022		2021
1-4 family residential properties	$	1,128	$	94
Nonfarm, nonresidential properties		561		4,463
Other real estate properties		297		—
Total other real estate	$	1,986	$	4,557

115

At December 31, 2022 and 2021, other real estate by geographic location consisted of the following ($ in thousands):


	December 31,
	2022		2021
Alabama	$	194	$	—
Mississippi (1)		1,769		4,557
Tennessee (2)		23		—
Total other real estate	$	1,986	$	4,557

(1)

Mississippi includes Central and Southern Mississippi Regions.

(2)

Tennessee includes Memphis, Tennessee and Northern Mississippi Regions.

At December 31, 2022 and 2021, the balance of other real estate included $1.1 million and $94 thousand, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At December 31, 2022 and 2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $2.9 million and $1.2 million, respectively.

Note 9 – Leases

The table below details the components of net lease cost for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021			2020
Finance leases
Amortization of right-of-use assets	$	1,479		$	1,546		$	1,856
Interest on lease liabilities		188			219			254
Operating lease cost		5,172			5,275			5,188
Short-term lease cost		389			463			423
Variable lease cost		1,150			1,234			1,286
Sublease income		(168	)		(350	)		(335	)
Net lease cost	$	8,210		$	8,387		$	8,672

The table below details the cash payments included in the measurement of lease liabilities during the periods presented ($ in thousands):


	Years Ended December 31,
	2022		2021		2020
Finance leases
Operating cash flows included in operating activities	$	188	$	219	$	254
Financing cash flows included in payments under finance lease obligations		1,409		1,434		1,715
Operating leases
Operating cash flows (fixed payments) included in other operating activities, net		4,829		4,781		4,988
Operating cash flows (liability reduction) included in other operating activities, net		4,009		3,948		3,856

116

The table below details balance sheet information, as well as weighted-average lease terms and discount rates, at December 31, 2022 and 2021 ($ in thousands):


	December 31,
	2022			2021
Finance lease right-of-use assets, net of accumulated depreciation	$	4,537		$	6,017
Finance lease liabilities		5,055			6,464
Operating lease right-of-use assets		36,301			34,603
Operating lease liabilities		38,932			36,468

Weighted-average lease term
Finance leases	8.72 years			8.37 years
Operating leases	9.64 years			9.25 years

Weighted-average discount rate
Finance leases		3.49	%		3.24	%
Operating leases		3.22	%		2.84	%

At December 31, 2022, future minimum rental commitments under finance and operating leases were as follows ($ in thousands):


	Finance Leases			Operating Leases
2023	$	885		$	5,014
2024		572			5,031
2025		584			4,998
2026		589			4,690
2027		594			4,457
Thereafter		2,685			20,954
Total minimum lease payments		5,909			45,144
Less imputed interest		(854	)		(6,212	)
Lease liabilities	$	5,055		$	38,932

Note 10 – Deposits

At December 31, 2022 and 2021, deposits consisted of the following ($ in thousands):


	December 31,
	2022		2021
Noninterest-bearing demand	$	4,093,771	$	4,771,065
Interest-bearing demand		4,773,219		4,372,500
Savings		4,282,435		4,745,137
Time		1,288,223		1,198,458
Total	$	14,437,648	$	15,087,160

Interest expense on deposits by type consisted of the following for the periods presented ($ in thousands):


	Years Ended December 31,
	2022		2021		2020
Interest-bearing demand	$	16,409	$	4,906	$	9,985
Savings		9,654		7,912		13,481
Time		3,006		4,127		14,021
Total	$	29,069	$	16,945	$	37,487

Time deposits that exceed the FDIC insurance limit of $250 thousand totaled $247.2 million and $164.0 million at December 31, 2022 and 2021, respectively.

117

The maturities of interest-bearing deposits at December 31, 2022, are as follows ($ in thousands):


2023	$	996,457
2024		245,655
2025		24,804
2026		9,526
2027		9,139
Thereafter		2,642
Total time deposits		1,288,223
Interest-bearing deposits with no stated maturity		9,055,654
Total interest-bearing deposits	$	10,343,877

Note 11 - Borrowings

Securities Sold Under Repurchase Agreements

Trustmark utilizes securities sold under repurchase agreements as a source of borrowing in connection with overnight repurchase agreements offered to commercial deposit customers by using its unencumbered investment securities as collateral. Trustmark accounts for its securities sold under repurchase agreements as secured borrowings in accordance with FASB ASC Subtopic 860-30, “Transfers and Servicing – Secured Borrowing and Collateral.” Securities sold under repurchase agreements are stated at the amount of cash received in connection with the transaction. Trustmark monitors collateral levels on a continual basis and may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under repurchase agreements are secured by securities with a carrying amount of $102.4 million and $252.4 million at December 31, 2022 and 2021, respectively. At both December 31, 2022 and 2021, all repurchase agreements were short-term and consisted primarily of sweep repurchase arrangements, under which excess deposits are “swept” into overnight repurchase agreements with Trustmark. The following table presents the securities sold under repurchase agreements by collateral pledged at December 31, 2022 and 2021 ($ in thousands):


	December 31,
	2022		2021
Mortgage-backed securities
Residential mortgage pass-through securities
Issued by FNMA and FHLMC	$	41,732	$	167,310
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		1,111		1,475
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		21,277		24,528
Total securities sold under repurchase agreements	$	64,120	$	193,313

Other Borrowings

At December 31, 2022 and 2021, other borrowings consisted of the following ($ in thousands):


	December 31,
	2022		2021
FHLB advances	$	975,078	$	97
Serviced GNMA loans eligible for repurchase		70,805		84,464
Finance lease liabilities		5,055		6,464
Total other borrowings	$	1,050,938	$	91,025

FHLB Advances

At both December 31, 2022 and 2021, Trustmark had no outstanding short-term FHLB advances with the FHLB of Atlanta.

At both December 31, 2022 and 2021, Trustmark had one outstanding long-term FHLB advance with the FHLB of Atlanta totaling $78 thousand and $97 thousand, respectively. This advance was assumed through the BancTrust merger and had a fixed interest rate of 0.08%. At December 31, 2022 and 2021, this advance had a remaining maturity of 3.71 years and 4.71 years, respectively. There was no fair market value adjustment associated with the BancTrust merger included in the FHLB advances at December 31, 2022 and 2021. Trustmark’s FHLB advances are collateralized by securities held in safekeeping with the FHLB of Atlanta.

118

At December 31, 2022, Trustmark had four outstanding short-term FHLB advances totaling $975.0 million and no long-term FHLB advances with the FHLB of Dallas, compared to no outstanding short-term or long-term FHLB advances with the FHLB of Dallas at December 31, 2021. Two of the outstanding short-term advances with the FHLB of Dallas had fixed rates of 4.56% and 4.59% with balances of $125.0 million and $375.0 million, respectively. The remaining two outstanding short-term advances had a fixed rate of 4.57% each with balances of $300.0 million and $175.0 million, respectively. These four outstanding short-term FHLB advances had a weighted-average remaining maturity of 10 days with a weighted-average cost of 4.58%.

Trustmark incurred $4.8 million of interest expense on short-term FHLB advances in 2022, compared to $2 thousand of interest expense in 2021 and $9 thousand of interest expense in 2020. Trustmark incurred no interest expense on long-term FHLB advances in 2022 and 2021 compared to $8 thousand of interest expense in 2020.

At December 31, 2022 and 2021, Trustmark had $3.034 billion and $3.449 billion, respectively, available in additional borrowing capacity from the FHLB of Dallas.

Subordinated Notes

During 2020, Trustmark agreed to issue and sell $125.0 million aggregate principal amount of its 3.625% Fixed-to-Floating Rate Subordinated Notes (the Notes) due December 1, 2030. The Notes were sold at an underwriting discount of 1.2%, resulting in net proceeds to Trustmark of $123.5 million before deducting offering expenses. At December 31, 2022 and 2021, the carrying amount of the Notes was $123.3 million and $123.0 million, respectively. The Notes are unsecured obligations and are subordinated in right of payment to all of Trustmark’s existing and future senior indebtedness, whether secured or unsecured. The Notes are obligations of Trustmark only and are not obligations of, and are not guaranteed by, any of its subsidiaries, including TNB. From the date of issuance until November 30, 2025, the Notes bear interest at a fixed rate of 3.625% per year, payable semi-annually in arrears on June 1 and December 1 of each year. Beginning December 1, 2025, the Notes will bear interest at a floating rate per year equal to the Benchmark rate, which is the Three-Month Term Secured Overnight Financing Rate (SOFR), plus 338.7 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year. The Notes qualify as Tier 2 capital for Trustmark. The Notes may be redeemed at Trustmark’s option under certain circumstances. Trustmark intends to use the net proceeds for general corporate purposes.

Junior Subordinated Debt Securities

On August 18, 2006, Trustmark completed a private placement of $60.0 million of trust preferred securities through a newly formed Delaware trust affiliate, Trustmark Preferred Capital Trust I (the Trust). The trust preferred securities mature September 30, 2036, are redeemable at Trustmark’s option and bear interest at a variable rate per annum equal to the three-month LIBOR plus 1.72%. Under applicable regulatory guidelines, these trust preferred securities qualify as Tier 1 capital. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase $61.9 million in aggregate principal amount of Trustmark’s junior subordinated debentures.

The debentures were issued pursuant to a Junior Subordinated Indenture, dated August 18, 2006, between Trustmark, as issuer, and Wilmington Trust Company, National Association, as trustee. Like the trust preferred securities, the debentures bear interest at a variable rate per annum equal to the three-month LIBOR plus 1.72% and mature on September 30, 2036. The debentures may be redeemed at Trustmark’s option at any time. The interest payments by Trustmark will be used to pay the quarterly distributions payable by the Trust to the holder of the trust preferred securities. However, so long as no event of default has occurred under the debentures, Trustmark may defer interest payments on the debentures (in which case the Trust will also defer distributions otherwise due on the trust preferred securities) for up to 20 consecutive quarters.

The debentures are subordinated to the prior payment of any other indebtedness of Trustmark that, by its terms, is not similarly subordinated. The trust preferred securities are recorded as a long-term liability on Trustmark’s balance sheet; however, for regulatory purposes the trust preferred securities are treated as Tier 1 capital under the rules of the Federal Reserve Board (FRB), Trustmark’s primary federal regulatory agency.

Trustmark also entered into a Guarantee Agreement, dated August 18, 2006, pursuant to which it has agreed to guarantee the payment by the Trust of distributions on the trust preferred securities and the payment of principal of the trust preferred securities when due, either at maturity or on redemption, but only if and to the extent that the Trust fails to pay distributions on or principal of the trust preferred securities after having received interest payments or principal payments on the junior subordinated debentures from Trustmark for the purpose of paying those distributions or the principal amount of the trust preferred securities.

As defined in applicable accounting standards, the Trust, a wholly-owned subsidiary of Trustmark, is considered a variable interest entity for which Trustmark is not the primary beneficiary. Accordingly, the accounts of the Trust are not included in Trustmark’s consolidated financial statements.

119

At both December 31, 2022 and 2021, assets for the Trust totaled $61.9 million, resulting from the investment in junior subordinated debentures issued by Trustmark. Liabilities and shareholders’ equity for the Trust also totaled $61.9 million at both December 31, 2022 and 2021, resulting from the issuance of trust preferred securities in the amount of $60.0 million as well as $1.9 million in common securities issued to Trustmark. During 2022, net income for the Trust equaled $66 thousand resulting from interest income from the junior subordinated debt securities issued by Trustmark to the Trust, compared with net income of $36 thousand during 2021 and $51 thousand during 2020. Dividends issued to Trustmark by the Trust during 2022 totaled $66 thousand, compared to $36 thousand during 2021 and $51 thousand during 2020.

Note 12 – Revenue from Contracts with Customers

The following table presents noninterest income disaggregated by reportable operating segment and revenue stream for the periods presented ($ in thousands):


	Year Ended December 31, 2022						Year Ended December 31, 2021							Year Ended December 31, 2020
	Topic 606		Not Topic 606 (1)		Total		Topic 606		Not Topic 606 (1)			Total		Topic 606		Not Topic 606 (1)		Total
General Banking Segment
Service charges on deposit accounts	$	42,073	$	—	$	42,073	$	33,169	$	—		$	33,169	$	32,213	$	—	$	32,213
Bank card and other fees		31,474		4,584		36,058		30,897		3,727			34,624		27,398		3,594		30,992
Mortgage banking, net		—		28,306		28,306		—		63,750			63,750		—		125,822		125,822
Wealth management		639		—		639		48		—			48		254		—		254
Other, net		8,469		805		9,274		6,621		(338	)		6,283		7,432		978		8,410
Total noninterest income	$	82,655	$	33,695	$	116,350	$	70,735	$	67,139		$	137,874	$	67,297	$	130,394	$	197,691

Wealth Management Segment
Service charges on deposit accounts	$	84	$	—	$	84	$	77	$	—		$	77	$	76	$	—	$	76
Bank card and other fees		47		—		47		38		—			38		30		—		30
Wealth management		34,374		—		34,374		35,142		—			35,142		31,371		—		31,371
Other, net		528		39		567		130		33			163		107		50		157
Total noninterest income	$	35,033	$	39	$	35,072	$	35,387	$	33		$	35,420	$	31,584	$	50	$	31,634

Insurance Segment
Insurance commissions	$	53,721	$	—	$	53,721	$	48,511	$	—		$	48,511	$	45,176	$	—	$	45,176
Other, net		1		—		1		105		—			105		92		—		92
Total noninterest income	$	53,722	$	—	$	53,722	$	48,616	$	—		$	48,616	$	45,268	$	—	$	45,268

Consolidated
Service charges on deposit accounts	$	42,157	$	—	$	42,157	$	33,246	$	—		$	33,246	$	32,289	$	—	$	32,289
Bank card and other fees		31,521		4,584		36,105		30,935		3,727			34,662		27,428		3,594		31,022
Mortgage banking, net		—		28,306		28,306		—		63,750			63,750		—		125,822		125,822
Insurance commissions		53,721		—		53,721		48,511		—			48,511		45,176		—		45,176
Wealth management		35,013		—		35,013		35,190		—			35,190		31,625		—		31,625
Other, net		8,998		844		9,842		6,856		(305	)		6,551		7,631		1,028		8,659
Total noninterest income	$	171,410	$	33,734	$	205,144	$	154,738	$	67,172		$	221,910	$	144,149	$	130,444	$	274,593

(1)

Noninterest income not in scope for FASB ASC Topic 606 includes customer derivatives revenue and miscellaneous credit card income within bank card and other fees; mortgage banking, net; amortization of tax credits, accretion of the FDIC indemnification asset, cash surrender value on various life insurance policies, earnings on Trustmark’s non-qualified deferred compensation plans, other partnership investments and rental income within other, net; and securities gains (losses), net.

120

Note 13 – Income Taxes

The income tax provision included in the consolidated statements of income was as follows for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021		2020
Current
Federal	$	15,377		$	5,815	$	40,118
State		3,283			2,118		9,439
Deferred
Federal		(13,440	)		16,092		(15,840	)
State		(3,360	)		4,023		(3,960	)
Income tax provision	$	1,860		$	28,048	$	29,757

For the periods presented, the income tax provision differs from the amount computed by applying the statutory federal income tax rate in effect for each respective period to income before income taxes as a result of the following ($ in thousands):


	Years Ended December 31,
	2022			2021			2020
Income tax computed at statutory tax rate	$	15,487		$	36,837		$	39,854
Tax exempt interest		(4,419	)		(3,935	)		(4,284	)
Nondeductible interest expense		271			106			247
State income taxes, net		2,596			1,673			7,457
Income tax credits, net		(10,071	)		(10,479	)		(9,375	)
Death benefit gains		(287	)		(175	)		(91	)
Other		(1,717	)		4,021			(4,051	)
Income tax provision	$	1,860		$	28,048		$	29,757

Temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities gave rise to the following net deferred tax assets at December 31, 2022 and 2021, which are included in other assets on the accompanying consolidated balance sheets ($ in thousands):


	December 31,
	2022		2021
Deferred tax assets:
Litigation losses	$	25,187	$	—
Other real estate		70		1,182
Accumulated credit losses		39,370		33,895
Deferred compensation		17,695		18,804
Finance and operating lease liabilities		10,997		10,733
Realized built-in losses		9,180		9,930
Securities		84,813		5,924
Pension and other postretirement benefit plans		1,931		4,929
Interest on nonaccrual loans		1,159		1,235
LHFS		205		591
Stock-based compensation		2,647		2,771
Loan fees		—		125
Derivatives		5,056		—
Other		10,038		9,705
Gross deferred tax asset		208,348		99,824

Deferred tax liabilities:
Goodwill and other identifiable intangibles		14,378		14,667
Premises and equipment		15,978		16,470
Finance and operating lease right-of-use assets		10,209		10,155
MSR		24,452		13,007
Securities		2,069		1,686
Other		2,876		3,081
Gross deferred tax liability		69,962		59,066
Net deferred tax asset	$	138,386	$	40,758

121

The following table provides a summary of the changes during the calendar years presented in the amount of unrecognized tax benefits that are included in other liabilities in the consolidated balance sheet ($ in thousands):


	December 31,
	2022			2021			2020
Balance at beginning of period	$	2,129		$	1,781		$	1,524
Change due to tax positions taken during the current year		653			412			353
Change due to tax positions taken during a prior year		(266	)		107			79
Change due to the lapse of applicable statute of limitations during the current year		(200	)		(171	)		(175	)
Balance at end of period	$	2,316		$	2,129		$	1,781

Accrued interest, net of federal benefit	$	489		$	419		$	330

Unrecognized tax benefits that would impact the effective tax rate, if recognized	$	1,948		$	1,766		$	1,420

Interest and penalties related to unrecognized tax benefits, if any, are recorded in income tax expense. With limited exception, Trustmark is no longer subject to U.S. federal, state and local audits by tax authorities for 2016 and earlier tax years. Trustmark does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

Note 14 – Defined Benefit and Other Postretirement Benefits

Qualified Pension Plan

Trustmark maintains a noncontributory tax-qualified defined benefit pension plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the Continuing Plan) to satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions.

122

The following tables present information regarding the benefit obligation, plan assets, funded status, amounts recognized in accumulated other comprehensive loss, net periodic benefit cost and other statistical disclosures for the Continuing Plan for the periods presented ($ in thousands):


	December 31,
	2022			2021
Change in benefit obligation:
Benefit obligation, beginning of year	$	8,647		$	9,547
Service cost		115			252
Interest cost		192			173
Actuarial (gain) loss		(1,882	)		(198	)
Benefits paid		(165	)		(1,127	)
Benefit obligation, end of year	$	6,907		$	8,647

Change in plan assets:
Fair value of plan assets, beginning of year	$	2,900		$	2,873
Actual return on plan assets		(285	)		291
Employer contributions		457			863
Benefit payments		(165	)		(1,127	)
Fair value of plan assets, end of year	$	2,907		$	2,900

Funded status at end of year - net liability	$	(4,000	)	$	(5,747	)

Amounts recognized in accumulated other comprehensive loss:
Net (gain) loss - amount recognized	$	(271	)	$	1,428

Actuarial (gain) loss included in benefit obligation:
Change in discount rate	$	(2,174	)	$	(491	)
Change in mortality table		—			15
Other		292			278
Actuarial (gain) loss	$	(1,882	)	$	(198	)


	Years Ended December 31,
	2022			2021			2020
Net periodic benefit cost:
Service cost	$	115		$	252		$	254
Interest cost		192			173			241
Expected return on plan assets		(121	)		(130	)		(154	)
Recognized net loss due to lump sum settlements		—			183			119
Recognized net actuarial loss		224			594			326
Net periodic benefit cost	$	410		$	1,072		$	786

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss), before taxes:
Net loss - Total recognized in other comprehensive income (loss)	$	(1,699	)	$	(1,136	)	$	671
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(1,289	)	$	(64	)	$	1,457

Weighted-average assumptions as of end of year:
Discount rate for benefit obligation		4.88	%		2.41	%		1.95	%
Discount rate for net periodic benefit cost		2.41	%		1.95	%		2.84	%
Expected long-term return on plan assets		5.00	%		5.00	%		5.00	%

123

Plan Assets

The weighted-average asset allocations by asset category are presented below for the Continuing Plan at December 31, 2022 and 2021.


	December 31,
	2022			2021
Money market fund		7.0	%		4.0	%
Exchange traded funds:
Equity securities		47.0	%		50.0	%
Fixed income		39.0	%		35.0	%
International		7.0	%		11.0	%
Total		100.0	%		100.0	%

The strategic objective of the investments of the assets in the Continuing Plan aims to provide long-term capital growth with moderate income. The allocation is managed on a total return basis with the average participant age in mind. It is constructed with an intermediate investment time frame with a moderate to high risk tolerance or a long-term investment time frame with a low to moderate risk tolerance. The plan allocation is typically balanced between equity and fixed income. The equity exposure has the potential to earn a return greater than inflation while the fixed income exposure may reduce the risk and volatility of the portfolio to which the equity allocation contributes.

Fair Value Measurements

At this time, Trustmark presents no fair values that are derived through internal modeling. Should positions requiring fair valuation arise that are not relevant to existing methodologies, Trustmark will make every reasonable effort to obtain market participant assumptions, or independent evaluation.

The following tables set forth by level, within the fair value hierarchy, the Continuing Plan’s assets measured at fair value at December 31, 2022 and 2021 ($ in thousands):


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Money market fund	$	203	$	203	$	—	$	—
Exchange traded funds:
Equity securities		1,379		1,379		—		—
Fixed income		1,135		1,135		—		—
International		190		190		—		—
Total assets at fair value	$	2,907	$	2,907	$	—	$	—


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Money market fund	$	107	$	107	$	—	$	—
Exchange traded funds:
Equity securities		1,460		1,460		—		—
Fixed income		1,021		1,021		—		—
International		312		312		—		—
Total assets at fair value	$	2,900	$	2,900	$	—	$	—

There have been no changes in the methodologies used in estimating the fair value of plan assets at December 31, 2022. The money market fund approximates fair value due to its immediate maturity.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although Trustmark believes their valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Contributions

124

December 31. For the plan year ending December 31, 2022, Trustmark’s minimum required contribution to the Continuing Plan was $170 thousand and Trustmark contributed $332 thousand. For the plan year ending December 31, 2023, Trustmark’s minimum required contribution to the Continuing Plan is expected to be $195 thousand. Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout 2023 to determine any additional funding requirements by the plan’s measurement date.

Estimated Future Benefit Payments and Other Disclosures

The following table presents the expected benefit payments, which reflect expected future service, for the Continuing Plan ($ in thousands):


Year	Amount
2023	$	1,864
2024		1,068
2025		556
2026		583
2027		639
2028 - 2032		1,565

No net gain or loss is expected to be recognized as components of net periodic benefit cost during 2023 in accumulated other comprehensive income (loss).

Supplemental Retirement Plans

Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The annual measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger date.

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The following tables present information regarding the benefit obligation, plan assets, funded status, amounts recognized in accumulated other comprehensive loss, net periodic benefit cost and other statistical disclosures for Trustmark’s nonqualified supplemental retirement plans for the periods presented ($ in thousands):


	December 31,
	2022			2021
Change in benefit obligation:
Benefit obligation, beginning of year	$	55,035		$	59,646
Service cost		71			75
Interest cost		1,278			1,125
Actuarial (gain) loss		(9,195	)		(2,357	)
Benefits paid		(3,988	)		(3,454	)
Benefit obligation, end of year	$	43,201		$	55,035
Change in plan assets:
Fair value of plan assets, beginning of year	$	—		$	—
Employer contributions		3,988			3,454
Benefit payments		(3,988	)		(3,454	)
Fair value of plan assets, end of year	$	—		$	—

Funded status at end of year - net liability	$	(43,201	)	$	(55,035	)

Amounts recognized in accumulated other comprehensive loss:
Net loss	$	7,756		$	17,937
Prior service cost		237			348
Amounts recognized	$	7,993		$	18,285

Actuarial (gain) loss included in benefit obligation:
Change in discount rate	$	(9,803	)	$	(2,431	)
Change in mortality table		—			134
Other		608			(60	)
Actuarial (gain) loss	$	(9,195	)	$	(2,357	)


	Years Ended December 31,
	2022			2021			2020
Net periodic benefit cost:
Service cost	$	71		$	75		$	77
Interest cost		1,278			1,125			1,576
Amortization of prior service cost		111			111			150
Recognized net actuarial loss		986			1,192			957
Net periodic benefit cost	$	2,446		$	2,503		$	2,760

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss), before taxes:
Net (gain) loss	$	(10,181	)	$	(3,549	)	$	3,211
Amortization of prior service cost		(111	)		(111	)		(150	)
Total recognized in other comprehensive income (loss)	$	(10,292	)	$	(3,660	)	$	3,061
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(7,846	)	$	(1,157	)	$	5,821

Weighted-average assumptions as of end of year:
Discount rate for benefit obligation		4.88	%		2.41	%		1.95	%
Discount rate for net periodic benefit cost		2.41	%		1.95	%		2.84	%

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Estimated Supplemental Retirement Plan Payments and Other Disclosures

The following table presents the expected benefits payments for Trustmark’s supplemental retirement plans ($ in thousands):


Year	Amount
2023	$	3,963
2024		3,977
2025		3,838
2026		3,785
2027		3,596
2028 - 2032		16,536

Amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost during 2023 include a loss of $284 thousand and prior service cost of $111 thousand.

Other Benefit Plans

Defined Contribution Plan

Trustmark provides associates with a self-directed 401(k) retirement plan that allows associates to contribute a percentage of eligible compensation, within limits provided by the Internal Revenue Code and accompanying regulations, into the plan. Trustmark matches 100% of associate contributions to the plan based on the amount of each participant’s contributions up to a maximum of 6% of eligible compensation, subject to the IRS maximum eligible compensation. Associates are automatically enrolled in the plan at 3% of eligible compensation unless they opt out within 60 days of employment. Associates may become eligible to make elective deferral contributions the first of the month following one month of employment. Eligible associates that elect to participate vest immediately in Trustmark’s matching contributions. Trustmark’s contributions to this plan were $10.2 million in 2022, $9.9 million in 2021 and $9.2 million in 2020.

Note 15 – Stock and Incentive Compensation Plans

Trustmark has granted stock and incentive compensation awards and units subject to the provisions of the Stock and Incentive Compensation Plan (the Stock Plan). Current outstanding and future grants of stock and incentive compensation awards are subject to the provisions of the Stock Plan, which is designed to provide flexibility to Trustmark regarding its ability to motivate, attract and retain the services of key associates and directors. The Stock Plan also allows Trustmark to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance units to key associates and directors. At December 31, 2022, the maximum number of shares of Trustmark’s common stock available for issuance under the Stock Plan was 1,004,664 shares.

Restricted Stock Grants

Performance Awards

Trustmark’s performance awards vest over three years and are granted to Trustmark’s executive and senior management teams. Performance awards granted vest based on performance goals of return on average tangible equity and total shareholder return. Performance awards are valued utilizing a Monte Carlo simulation model to estimate fair value of the awards at the grant date. The Monte Carlo simulation is performed by an independent valuation consultant and requires the use of subjective modeling assumptions. These awards are recognized using the straight-line method over the requisite service period. These awards provide for achievement units if performance measures exceed 100%. The restricted share agreement for these awards provides for voting rights and dividend privileges. Beginning in 2020, Trustmark began granting performance units instead of performance awards. The performance units have the same attributes as the previously granted performance awards, except for the performance units do not provide voting rights.

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The following table summarizes Trustmark’s performance award activity for the periods presented:


	Years Ended December 31,
	2022					2021					2020
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Grant-Date					Grant-Date					Grant-Date
	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Nonvested shares, beginning of year		140,821		$	31.80		145,042		$	32.43		149,914		$	32.88
Granted		60,773			32.64		53,273			30.02		53,450			31.98
Released from restriction		(19,723	)		33.40		(44,536	)		31.88		(36,357	)		33.31
Forfeited		(33,455	)		33.11		(12,958	)		31.28		(21,965	)		32.97
Nonvested shares, end of year		148,416		$	31.63		140,821		$	31.80		145,042		$	32.43

Time-based Awards

Trustmark’s time-based awards granted to Trustmark’s executive and senior management teams vest over three years. Trustmark's time-based awards granted to members of Trustmark’s Board of Directors vest over one year. Time-based awards are valued utilizing the fair value of Trustmark’s stock at the grant date. These awards are recognized on the straight-line method over the requisite service period. During 2020, Trustmark began granting time-based units instead of time-based awards. The time-based units have the same attributes as the previously granted time-based awards, except for the time-based units do not provide voting rights.

The following table summarizes Trustmark’s time-based award activity for the periods presented:


	Years Ended December 31,
	2022					2021					2020
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Grant-Date					Grant-Date					Grant-Date
	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Nonvested shares, beginning of year		337,466		$	31.18		301,619		$	32.24		300,006		$	33.04
Granted		133,307			31.85		180,847			29.85		123,810			31.52
Released from restriction		(148,905	)		32.16		(135,120	)		31.77		(110,537	)		33.58
Forfeited		(8,890	)		31.62		(9,880	)		31.19		(11,660	)		32.47
Nonvested shares, end of year		312,978		$	30.99		337,466		$	31.18		301,619		$	32.24

The following table presents information regarding compensation expense for awards under the Stock Plan for the periods presented ($ in thousands):


							At December 31, 2022
	Recognized Compensation Expense						Unrecognized		Weighted Average
	for Years Ended December 31,						Compensation		Life of Unrecognized
	2022		2021		2020		Expense		Compensation Expense
Performance awards	$	1,258	$	828	$	815	$	1,755		1.74
Time-based awards		3,625		4,773		4,382		3,524		1.59
Total	$	4,883	$	5,601	$	5,197	$	5,279

Note 16 – Commitments and Contingencies

Lending Related

Trustmark makes commitments to extend credit and issues standby and commercial letters of credit (letters of credit) in the normal course of business in order to fulfill the financing needs of its customers. The carrying amount of commitments to extend credit and letters of credit approximates the fair value of such financial instruments.

Commitments to extend credit are agreements to lend money to customers pursuant to certain specified conditions. Commitments generally have fixed expiration dates or other termination clauses. Because many of these commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit is represented by the contract amount of those instruments. Trustmark applies the same credit policies and standards as it does in the lending process when making these

128

commitments. The collateral obtained is based upon the nature of the transaction and the assessed creditworthiness of the borrower. At December 31, 2022 and 2021, Trustmark had unused commitments to extend credit of $5.472 billion and $5.238 billion, respectively.

Letters of credit are conditional commitments issued by Trustmark to insure the performance of a customer to a third-party. A financial standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument. A performance standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to perform some contractual, nonfinancial obligation. When issuing letters of credit, Trustmark uses the same policies regarding credit risk and collateral, which are followed in the lending process. At December 31, 2022 and 2021, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the other party for letters of credit was $144.1 million and $222.5 million, respectively. These amounts consist primarily of commitments with maturities of less than three years, which have an immaterial carrying value. Trustmark holds collateral to support standby letters of credit when deemed necessary. At December 31, 2022 and 2021, the fair value of collateral held was $15.4 million and $124.6 million, respectively.

ACL on Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which is included on the accompanying consolidated balance sheets.

Changes in the ACL on off-balance sheet credit exposures were as follows for the periods presented ($ in thousands):


	Years Ended December 31,
	2022		2021			2020
Balance at beginning of period	$	35,623	$	38,572		$	—
FASB ASU 2016-13 adoption adjustment		—		—			29,638
PCL, off-balance sheet credit exposures (1)		1,215		(2,949	)		8,934
Balance at end of period	$	36,838	$	35,623		$	38,572

(1)

Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures. The increase in the ACL on off-balance sheet credit exposures for the year ended December 31, 2022 was primarily due to the overall increase in the total reserve rates applied to off-balance sheet credit exposures as a result of the weakening in the macroeconomic forecasts and an increase in unfunded balances. The decrease in the ACL on off-balance sheet credit exposures for the year ended December 31, 2021 was primarily due to the overall decrease in the total reserve rates applied to off-balance sheet credit exposures as a result of improvements in macroeconomic forecasts and credit quality.

Legal Proceedings

Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in several lawsuits related to the collapse of the Stanford Financial Group.

On August 23, 2009, a purported class action complaint was filed in the District Court of Harris County, Texas, by Peggy Roif Rotstain, Guthrie Abbott, Catherine Burnell, Steven Queyrouze, Jaime Alexis Arroyo Bornstein and Juan C. Olano (collectively, Class Plaintiffs), on behalf of themselves and all others similarly situated, naming TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as ~~defendants.~~defendants (the Rotstain Action). The complaint ~~seeks~~sought to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees and other monies received by each defendant from entities controlled by R. Allen Stanford (collectively, the Stanford Financial Group) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud on the asserted grounds that defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme. ~~Class Plaintiffs have demanded a jury trial. Class Plaintiffs did not quantify damages.~~

In November 2009, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas), where multiple Stanford related matters ~~are being~~have been consolidated for pre-trial proceedings. In May 2010, all defendants (including TNB) filed motions to dismiss the lawsuit. In August 2010, the court authorized and approved the formation of an Official Stanford Investors Committee (OSIC) to represent the interests of Stanford investors and, under certain circumstances, to file legal actions for the benefit of Stanford investors. In December 2011, the OSIC filed a motion to intervene in this ~~action. In September 2012, the district court referred the case~~action, which was granted in December 2012. The OSIC initially sought to ~~a magistrate judge for hearing~~recover from TNB and ~~determination of certain pretrial issues. In December 2012, the court granted the OSIC’s motion to intervene, and the OSIC filed an Intervenor Complaint against one of~~ the other defendant financial ~~institutions. In February 2013, the OSIC filed a second Intervenor Complaint that asserts claims against TNB and the remaining defendant financial institutions. The OSIC seeks to recover:~~institutions: (i) alleged fraudulent transfers in the amount of the fees each of the defendants allegedly received from Stanford Financial Group, the profits each of the defendants allegedly made from Stanford Financial Group deposits, and

129

other monies each of the defendants allegedly received from Stanford Financial Group; (ii) damages attributable to alleged conspiracies by each of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud and conversion on the asserted grounds that the defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme; and (iii) punitive damages. ~~The OSIC did not quantify damages.~~

In July 2013, all defendants (including TNB) filed motions to dismiss the OSIC’s claims. In March 2015, the court entered an order authorizing the parties to conduct discovery regarding class certification, staying all other discovery and setting a deadline for the parties to complete briefing on class certification issues. In April 2015, the court granted in part and denied in part the defendants’ motions to dismiss the Class Plaintiffs’ claims and the OSIC’s claims. The court dismissed all of the Class Plaintiffs’ fraudulent

transfer claims and dismissed certain of the OSIC’s claims. The court denied the motions by TNB and the other financial institution defendants to dismiss the OSIC’s constructive fraudulent transfer claims.

On June 23, 2015, the court allowed the Class Plaintiffs to file a Second Amended Class Action Complaint (SAC), which asserted new claims against TNB and certain of the other defendants for (i) aiding, abetting and participating in a fraudulent scheme, (ii) aiding, abetting and participating in violations of the Texas Securities Act, (iii) aiding, abetting and participating in breaches of fiduciary duty, (iv) aiding, abetting and participating in conversion and (v) conspiracy. On July 14, 2015, the defendants (including TNB) filed motions to dismiss the SAC and to reconsider the court’s prior denial to dismiss the OSIC’s constructive fraudulent transfer claims against TNB and the other financial institutions that are defendants in the action. On July 27, 2016, the court denied the motion by TNB and the other financial institution defendants to dismiss the SAC and also denied the motion by TNB and the other financial institution defendants to reconsider the court’s prior denial to dismiss the OSIC’s constructive fraudulent transfer claims. On August 24, 2016, TNB filed its answer to the SAC. On October 20, 2017, the OSIC filed a motion seeking an order lifting the discovery stay and establishing a trial schedule. On November 4, 2016, the OSIC filed a First Amended Intervenor Complaint, which added claims for (i) aiding, abetting or participation in violations of the Texas Securities Act and (ii) aiding, abetting or participation in the breach of fiduciary duty. On November 7, 2017, the court denied the Class Plaintiffs’ motion seeking class certification and designation of class representatives and counsel, finding that common issues of fact did not predominate. The court granted the OSIC’s motion to lift the discovery stay that it had previously ordered.

On May 3, 2019, individual investors and entities filed motions to intervene in the action. On September 18, 2019, the court denied the motions to intervene. On October 14, 2019, certain of the proposed intervenors filed a notice of appeal. On February 3, 2021, the Fifth Circuit Court of Appeals affirmed the denial of the motions to intervene; this decision was affirmed by a panel of the Fifth Circuit on March 12, 2021.

On February 12, 2021, all defendants (including TNB) filed a motion for summary judgment with respect to OSIC claims that applied to all defendants. In addition, on the same date, TNB filed a separate motion for summary judgment with respect to aspects of OSIC claims that applied specifically to TNB. On March 19, 2021, OSIC filed notice with the court that it was abandoning as against all of the defendants (including TNB) certain of the claims previously set forth in the SAC. As a result, only the claims for (i) aiding, abetting and participating in breaches of fiduciary duty, (ii) aiding, abetting and participating in violations of the Texas Securities Act, and (iii) punitive damages remain as against TNB. On January 20, 2022, the court denied TNB’s motion for summary judgment, as well as the motion for summary judgment filed by all defendants (including TNB) with respect to OSIC claims that apply to all defendants.

The parties to the action have agreed that the case is to be tried in the District Court for the Southern District of Texas. On March 25, 2021, the District Court for the Northern District of Texas rescinded its previously-issued trial scheduling orders so that the Southern District of Texas could set scheduling for this case once the case had in fact been remanded. On January 19, 2022, the judge of the District Court for the Northern District of Texas to whom the case was then assigned issued a recommendation to the Judicial Panel on Multidistrict Litigation (the Panel) that the case be remanded to the District Court for the Southern District of Texas in light of that judge’s determination with respect to the summary judgment motions that triable issues of fact exist. On January 21, 2022, the Panel approved the remand of the case to the District Court for the Southern District of Texas, and on January 28, 2022 the remand of the case became effective. On June 9, 2022, the court entered an order scheduling trial beginning February 27, 2023, which will be held as a jury trial in front of Judge Kenneth M. Hoyt of the District Court for the Southern District of Texas.

On December 14, 2009, a different Stanford-related lawsuit was filed in the District Court of Ascension Parish, Louisiana, individually by Harold Jackson, Paul Blaine and Carolyn Bass Smith, Christine Nichols, and Ronald and Ramona Hebert naming TNB (misnamed as Trust National Bank) and other individuals and entities not affiliated with Trustmark as ~~defendants.~~defendants (the Jackson Action). The complaint seeks to recover the money lost by these individual plaintiffs as a result of the collapse of the Stanford Financial Group (in addition to other damages) under various theories and causes of action, including negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, detrimental reliance, conspiracy, and violation of Louisiana’s uniform fiduciary, securities, and racketeering laws. The complaint does not quantify the amount of money the plaintiffs seek to recover. In January 2010, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. On March 29, 2010, the court stayed the case. TNB filed a motion to lift the stay, which was denied on February 28, 2012. In September 2012, the district court referred the case to a magistrate judge for hearing and determination of certain pretrial issues.

On November 1, 2019, TNB was named as a defendant in a complaint filed by Paul Blaine Smith, Carolyn Bass Smith and other plaintiffs identified therein (the Smith Complaint). The Smith Complaint was filed in District Court, Harris County, Texas and named TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as defendants. The Smith Complaint relates to the collapse of the Stanford Financial Group, as does the other pending litigation relating to Stanford summarized above. Plaintiffs in the Smith Complaint have demanded a jury trial.

Trustmark has only recently become aware of the Smith Complaint (which has not yet been served upon TNB). Trustmark and its counsel are carefully evaluating the Smith Complaint in the form that is publicly available, and will update the foregoing description to the extent that additional material facts are ascertained.

TNB’s relationship with the Stanford Financial Group began as a result of Trustmark’s acquisition of a Houston-based bank in August 2006, and consisted of correspondent banking and other traditional banking services in the ordinary course of business. All Stanford-related lawsuits are in pre-trial stages.

On December 30, 2019, a complaint was filed in the United States District Court for the Southern District of Mississippi, Northern Division (the Court) by Alysson Mills in her capacity as Court-appointed Receiver (the Receiver) for Arthur Lamar Adams (Adams) and Madison Timber Properties, LLC (Madison Timber), naming TNB, two other Mississippi-based financial institutions both of which are unaffiliated with Trustmark and two individuals, one of who was employed by TNB at all times relevant to the complaint

and the other was employed either by TNB or one of the other defendant financial institutions, as defendants. The complaint seeks to recover from the defendants, for the benefit of the receivership estate and also for certain investors who were allegedly defrauded by Adams and Madison Timber, damages (including punitive damages) and related costs allegedly attributable to actions of the defendants that allegedly enabled illegal and fraudulent activities engaged in by Adams and Madison Timber. The Receiver did not quantify damages.

~~TNB’s relationship with Adams and Madison Timber consisted of traditional banking services in the ordinary course of business.~~

Trustmark and its subsidiaries are also parties to other lawsuits and other claims that arise in the ordinary course of business. Some of the lawsuits assert claims related to the lending, collection, servicing, investment, trust and other business activities, and some of the lawsuits allege substantial claims for damages.

All pending legal proceedings described above are being vigorously contested. In accordance FASB Accounting Standards Codification (ASC) Subtopic 450-20, “Loss Contingencies,” Trustmark will establish an accrued liability for litigation matters when those matters present loss contingencies that are both probable and reasonably estimable. At the present time, Management believes, based on the advice of legal counsel and Management’s evaluation, that a loss in any such proceeding is not probable and reasonably estimable. All matters will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. In view of the inherent difficulty of predicting the outcome of legal proceedings, Trustmark cannot predict the eventual outcomes of the currently pending matters or the timing of their ultimate resolution. Management currently believes, however, based upon the advice of legal counsel and Management’s evaluation and after taking into account its current insurance coverage, that the legal proceedings currently pending should not have a material adverse effect on Trustmark’s consolidated financial condition.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~PART II~~

~~ITEM 5.~~

~~MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

~~Common Stock Prices and Dividends~~

~~Trustmark’s common stock is listed on the Nasdaq Stock Market and is traded under the symbol “TRMK.”~~

Trustmark paid quarterly cash dividends to shareholders of $0.23 per share, or $0.92 per share annually, in 2019. As a component of return to common shareholders, Trustmark intends to pay cash dividends when corporate financial performance and capital strength allow it to do so. All dividend payments must be approved and declared by the Board of Directors of Trustmark and are required to be in compliance with all applicable laws and regulations.

At January 31, 2020, there were approximately 3,435 registered shareholders of record and approximately 21,264 beneficial account holders of shares in nominee name of Trustmark’s common stock. Other information required by this item can be found in Note 19 - Shareholders’ Equity included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

~~Stock Repurchase Program~~

On March 11, 2016, the Board of Directors of Trustmark authorized a stock repurchase program under which $100.0 million of Trustmark’s outstanding common stock could be acquired through March 31, 2019. Trustmark repurchased approximately 1.2 million shares of its common stock valued at $36.9 million during the year ended December 31, 2019, compared to approximately 2.0 million shares of its common stock valued at $62.4 million repurchased during the year ended December 31, 2018. Under the 2016 program, Trustmark repurchased approximately 3.2 million shares valued at $100.0 million.

The Board of Directors of Trustmark authorized a new stock repurchase program effective April 1, 2019 under which $100.0 million of Trustmark’s outstanding common stock may be acquired through March 31, 2020. The adoption of this new stock repurchase program followed the receipt of non-objection from the FRB. The shares may be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under this authority, Trustmark repurchased approximately 601 thousand shares of its common stock valued at $19.7 million during the year ended December 31, 2019.

~~Together, with the repurchases under the previous program, Trustmark purchased approximately 1.8 million shares of its common stock valued at $56.6 million during the year ended December 31, 2019.~~

On January 28, 2020, the Board of Directors of Trustmark authorized a new stock repurchase program, effective April 1, 2020, under which $100.0 million of Trustmark’s outstanding common stock may be acquired through December 31, 2021. The shares may be purchased from time to time at prevailing market prices, through open market or private transactions, depending on market conditions. There is no guarantee as to the number of shares that may be repurchased by Trustmark, and Trustmark may discontinue purchases under the program at any time at Management’s discretion.

~~Performance Graph~~

The following graph compares Trustmark’s annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the Nasdaq market value index and the Morningstar Banks – Regional – US index. The Morningstar Banks – Regional – US index is an industry index published by Morningstar and consists of 1,000 large, regional, diverse financial institutions serving the corporate, government and consumer needs of retail banking, investment banking, trust management, credit cards and mortgage banking in the United States. This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2014, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown.

Company
2014

2015

2016

2017

2018

2019

Trustmark

100.00

97.57

156.24

143.70

131.89

164.51

Morningstar Banks - Regional - US

100.00

93.77

120.37

142.21

125.41

152.82

NASDAQ Composite-Total Return

100.00

106.96

116.45

150.96

146.67

200.49

~~ITEM 6.~~

~~SELECTED FINANCIAL DATA~~

The following unaudited consolidated financial data is derived from Trustmark’s audited financial statements as of and for the five years ended December 31, 2019 ($ in thousands, except per share data). The data should be read in conjunction with Part II. Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. – Financial Statements and Supplementary Data.

Years Ended December 31,

2019

2018

2017

2016

2015

Consolidated Statements of Income

Total interest income

$
510,492

$
485,612

$
449,795

$
412,080

$
412,225

Total interest expense

83,903

66,192

42,245

24,547

20,460

Net interest income

426,589

419,420

407,550

387,533

391,765

Provision for loan losses, LHFI

10,797

17,993

15,094

10,957

8,375

Provision for loan losses, acquired loans

42

(1,005
)

(7,395
)

3,757

3,425

Noninterest income

187,045

184,836

184,663

173,943

173,149

Noninterest expense

429,002

415,415

430,169

407,298

401,662

Income before income taxes

173,793

171,853

154,345

139,464

151,452

Income taxes

23,333

22,269

48,715

31,053

35,414

Net Income

$
150,460

$
149,584

$
105,630

$
108,411

$
116,038

Revenue (1)

Total revenue

$
613,634

$
604,256

$
592,213

$
561,476

$
564,914

Per Share Data

Basic earnings per share

$
2.33

$
2.22

$
1.56

$
1.60

$
1.72

Diluted earnings per share

2.32

2.21

1.56

1.60

1.71

Cash dividends per share

0.92

0.92

0.92

0.92

0.92

Performance Ratios

Return on average equity

9.28
%

9.43
%

6.77
%

7.14
%

7.94
%
Return on average tangible equity

12.45
%

12.86
%

9.39
%

9.99
%

11.36
%
Return on average assets

1.11
%

1.11
%

0.77
%

0.84
%

0.95
%
Average equity/average assets

12.02
%

11.78
%

11.38
%

11.73
%

11.90
%
Net interest margin (fully taxable equivalent)

3.62
%

3.54
%

3.48
%

3.53
%

3.78
%
Dividend payout ratio

39.48
%

41.44
%

58.97
%

57.50
%

53.49
%

Credit Quality Ratios (2)

Net charge-offs (recoveries)/average loans

0.06
%

0.19
%

0.11
%

0.10
%

0.15
%
Provision for loan losses/average loans

0.12
%

0.20
%

0.18
%

0.14
%

0.12
%
Nonperforming loans/total loans (incl LHFS)

0.56
%

0.69
%

0.77
%

0.61
%

0.76
%
Nonperforming assets/total loans (incl LHFS)
plus other real estate

0.86
%

1.07
%

1.26
%

1.38
%

1.81
%
Allowance for loan losses/total loans (excl LHFS)

0.90
%

0.90
%

0.90
%

0.91
%

0.95
%

~~(1)~~

~~Consistent with Trustmark’s audited financial statements, revenue is defined as net interest income plus noninterest income.~~

~~(2)~~

~~Excludes Acquired Loans and Covered Other Real Estate.~~

December 31,

2019

2018

2017

2016

2015

Consolidated Balance Sheets

Total assets

$
13,497,877

$
13,286,460

$
13,797,953

$
13,352,333

$
12,678,896

Securities

2,340,503

2,721,456

3,295,121

3,515,325

3,533,240

Total loans (incl LHFS and acquired loans)

9,634,576

9,096,599

9,011,996

8,299,387

7,641,985

Deposits

11,245,557

11,364,411

10,577,512

10,056,012

9,588,230

Total shareholders' equity

1,660,702

1,591,453

1,571,701

1,520,208

1,473,057

Stock Performance

Market value - close

$
34.51

$
28.43

$
31.86

$
35.65

$
23.04

Book value

25.87

24.17

23.20

22.48

21.80

Tangible book value

19.84

18.24

17.35

16.76

15.98

Capital Ratios

Total equity/total assets

12.30
%

11.98
%

11.39
%

11.39
%

11.62
%
Tangible equity/tangible assets

9.72
%

9.31
%

8.77
%

8.74
%

8.79
%
Tangible equity/risk-weighted assets

11.58
%

11.11
%

11.13
%

11.39
%

11.68
%
Tier 1 leverage ratio

10.48
%

10.26
%

9.67
%

9.90
%

10.03
%
Common equity tier 1 risk-based capital ratio

11.93
%

11.77
%

11.77
%

12.16
%

12.57
%
Tier 1 risk-based capital ratio

12.48
%

12.33
%

12.33
%

12.76
%

13.21
%
Total risk-based capital ratio

13.25
%

13.07
%

13.10
%

13.59
%

14.07
%

~~The following unaudited tables represent Trustmark’s summary of quarterly operations for the years ended December 31, 2019 and 2018 ($ in thousands, except per share data):~~

2019

1Q

2Q

3Q

4Q

Interest income

$
125,491

$
130,136

$
130,228

$
124,637

Interest expense

20,683

22,412

21,762

19,046

Net interest income

104,808

107,724

108,466

105,591

Provision for loan losses, LHFI

1,611

2,486

3,039

3,661

Provision for loan losses, acquired loans

78

106

(140
)

(2
)
Noninterest income

41,491

49,639

48,337

47,578

Noninterest expense

106,021

106,101

106,853

110,027

Income before income taxes

38,589

48,670

47,051

39,483

Income taxes

5,250

6,530

6,016

5,537

Net income

$
33,339

$
42,140

$
41,035

$
33,946

Earnings per share

Basic

$
0.51

$
0.65

$
0.64

$
0.53

Diluted

0.51

0.65

0.64

0.53

2018

1Q

2Q

3Q

4Q

Interest income

$
115,640

$
120,266

$
124,770

$
124,936

Interest expense

13,547

15,102

17,787

19,756

Net interest income

102,093

105,164

106,983

105,180

Provision for loan losses, LHFI

3,961

3,167

8,673

2,192

Provision for loan losses, acquired loans

150

(441
)

(467
)

(247
)
Noninterest income

46,793

47,391

47,093

43,559

Noninterest expense

102,465

103,800

105,223

103,927

Income before income taxes

42,310

46,029

40,647

42,867

Income taxes

5,480

6,216

4,394

6,179

Net income

$
36,830

$
39,813

$
36,253

$
36,688

Earnings per share

Basic

$
0.54

$
0.59

$
0.54

$
0.55

Diluted

0.54

0.59

0.54

0.55

~~ITEM 7.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The following provides a narrative discussion and analysis of Trustmark’s financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and the supplemental financial data included in Part II. Item 8. – Financial Statements and Supplementary Data of this report. Discussion and analysis of Trustmark’s financial condition and results of operations for the years ended December 31, 2018 and 2017 are included in the respective sections within Part II. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of Trustmark’s Annual Report filed on Form 10-K for the year ended December 31, 2018.

~~Executive Overview~~

During 2019, Trustmark remained focused on its strategic initiatives of profitably increasing revenue across its financial services businesses, optimizing its balance sheet, deploying capital through stock repurchases and maintaining disciplined expense management. Trustmark achieved solid financial results with total revenue of $153.2 million and $613.6 million for the three months and year ended December 31, 2019, respectively. Trustmark continued to maintain and expand customer relationships as reflected by growth in the LHFI portfolio of $499.8 million, or 5.7%, during the year ended December 31, 2019. Credit quality remained strong and continued to be an important contributor to Trustmark’s financial success. Trustmark remains committed to supporting investments to promote profitable revenue growth, reengineering processes to enhance operational efficiency, realigning delivery channels to support changing customer preferences and managing the franchise for the long-term. Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. The Board of Directors of Trustmark declared a quarterly cash dividend of $0.23 per share. The dividend is payable March 15, 2020, to shareholders of record on March 1, 2020.

~~Financial Highlights~~

Trustmark reported net income of $33.9 million, or basic and diluted earnings per share (EPS) of $0.53, for the fourth quarter of 2019, compared to $36.7 million, or basic and diluted EPS of $0.55, in the fourth quarter of 2018. The decrease in net income when the fourth quarter of 2019 is compared to the same time period in 2018 was principally due to increases in total noninterest expense of $6.1 million, or 5.9%, and the provision for loan losses, LHFI of $1.5 million, or 67.0%, partially offset by an increase in total noninterest income of $4.0 million, or 9.2%. Trustmark’s reported performance during the quarter ended December 31, 2019, produced a return on average tangible equity of 10.85%, a return on average assets of 1.00%, an average equity to average assets ratio of 12.30% and a dividend payout ratio of 43.40%, compared to a return on average tangible equity of 12.41%, a return on average assets of 1.09%, an average equity to average assets ratio of 11.95% and a dividend payout ratio of 41.82% during the quarter ended December 31, 2018.

Revenue, which is defined as net interest income plus noninterest income, totaled $153.2 million for the quarter ended December 31, 2019 compared to $148.7 million for the quarter ended December 31, 2018, an increase of $4.4 million, or 3.0%. The increase in total revenue for the fourth quarter of 2019 was principally due to an increase in total noninterest income primarily as a result of increases in mortgage banking, net and other noninterest income, net.

Mortgage banking, net increased $2.2 million, or 38.5%, when the fourth quarter of 2019 is compared to the same time period in 2018, primarily due to an increase gain of sales or loans, net partially offset by an increase in the negative net hedge ineffectiveness. The net negative hedge ineffectiveness was primarily due to market volatility and adjustments to asset valuation assumptions during the fourth quarter of 2019. See the section captioned “Derivatives” for further discussion of the MSR hedge ineffectiveness. Other noninterest income, net increased $1.5 million, or 81.3%, when the fourth quarter of 2019 is compared to the same time period in 2018, primarily due to increases in other miscellaneous income and gains on sales of premises and equipment, net as well as a decline in amortization of tax credit partnerships.

Trustmark’s provision for loan losses, LHFI for the three months ended December 31, 2019 totaled $3.7 million, an increase of $1.5 million, or 67.0%, when compared to a provision for loan losses, LHFI of $2.2 million for the three months ended December 31, 2018. Please see the section captioned “Provision for Loan Losses, LHFI,” for additional information regarding the provision for loan losses, LHFI.

The increase in noninterest expense when the fourth quarter of 2019 is compared to the same time period in 2018 was principally due to increases in salaries and employee benefits, services and fees and other real estate expense, net. Salaries and employee benefits increased $3.6 million or 6.1% when the fourth quarter of 2019 is compared to the fourth quarter of 2018, primarily due to higher commission expense related to improvements in mortgage originations and the insurance lines of business and an increase in salaries expense primarily due to general merit increases. Services and fees increased $1.6 million, or 8.9%, when the fourth quarter of 2019 is compared to the fourth quarter of 2018, principally due to increases in data processing charges related to software, professional

~~services and fees and advertising expense. Other real estate expense, net increased $1.4 million principally due to an increase in write-downs of other real estate properties.~~

For the year ended December 31, 2019, Trustmark reported net income of $150.5 million, or basic and diluted EPS of $2.33 and $2.32, respectively, compared to $149.6 million, or basic and diluted EPS of $2.22 and $2.21, respectively, for the year ended December 31, 2018 and $105.6 million, or basic and diluted EPS of $1.56, for the year ended December 31, 2017. The increase in net income when 2019 is compared to 2018 was principally due to an increase in net interest income of $7.2 million, or 1.7%, and a decrease in the provision for loan losses, LHFI, of $7.2 million, or 40.0%, partially offset by an increase in total noninterest expense of $13.6 million, or 3.3%. Trustmark’s reported performance for the year ended December 31, 2019, produced a return on average tangible equity of 12.45%, a return on average assets of 1.11% and a dividend payout ratio of 39.48%, compared to a return on average tangible equity of 12.86%, a return on average assets of 1.11% and a dividend payout ratio of 41.44% for the year ended December 31, 2018 and a return on average tangible equity of 9.39%, a return on average assets of 0.77% and a dividend payout ratio of 58.97% for the year ended December 31, 2017. Trustmark’s average equity to average assets ratio was 12.02%, 11.78% and 11.38% for the years ended December 31, 2019, 2018 and 2017, respectively.

Revenue totaled $613.6 million for the year ended December 31, 2019, compared to $604.3 million and $592.2 million for the years ended December 31, 2018 and 2017, respectively. The increase in total revenue for 2019 compared to 2018 was principally the result of an increase in interest and fees on LHFS and LHFI and declines in other interest expense and interest expense on federal funds purchased and securities sold under repurchase agreements (repurchase agreements), partially offset by an increase in interest expense on deposits and decreases in interest on total securities and interest and fees on acquired loans.

Interest and fees on LHFS and LHFI for 2019 increased $44.2 million, or 11.2%, compared to 2018, primarily due to an increase in interest earned on the LHFI portfolio as a result of the $499.8 million, or 5.7%, year-over-year increase in the LHFI portfolio and higher interest rates. Other interest expense declined $4.2 million, or 55.7%, when 2019 is compared to 2018, principally due to a decrease in interest expense on FHLB advances. Interest expense on federal funds purchased and repurchase agreements declined $3.4 million, or 70.3%, when 2019 is compared to 2018, primarily due to Trustmark’s reduction of its funding from external sources at the end of 2018 as well as the FRB’s reduction of the target rate for federal funds during the second half of 2019. See the section captioned “Borrowings” for further discussion on funding from external sources. Interest expense on deposits for 2019 increased $25.2 million, or 46.8%, when compared to 2018, principally due to increases in average balances of interest-bearing demand deposits as well as higher interest rates in general. Interest on total securities for 2019 declined $12.0 million, or 17.5%, compared to 2018, principally due to a $381.0 million, or 14.0%, decline in total securities primarily due to the run-off of maturing investment securities. Interest and fees on acquired loans for 2019 decreased $8.7 million, or 51.1%, compared to 2018, primarily due to declines in accretion income and loan recovery from settlement of debt related to loans acquired in all four acquisitions and deferred fee amortization and other interest and fees related to loans acquired in the Reliance merger, as a result of paydowns/pay-offs of these loans as well as acquired loans transferred to LHFI during 2018.

Trustmark’s provision for loan losses, LHFI, for 2019 totaled $10.8 million, a decrease of $7.2 million, or 40.0%, when compared to a provision for loan losses, LHFI of $18.0 million for 2018. Please see the section captioned “Provision for Loan Losses, LHFI,” for additional information regarding the provision for loan losses, LHFI.

The increase in noninterest expense during 2019 was principally due to increases in salaries and employee benefits and services and fees, partially offset by a decline in FDIC assessment expense. Salaries and employee benefits increased $9.7 million, or 4.1%, when 2019 is compared to 2018, primarily due to increases in commission expense related to improvements in mortgage originations and the insurance lines of business, salaries expense primarily due to general merit increases, insurance expense related to Trustmark’s health plans and stock compensation. Services and fees for 2019 increased $6.9 million, or 10.4%, compared to 2018 primarily due to increases in data processing charges related to software, professional services and fees and advertising expense. FDIC assessment expense declined $3.0 million, or 31.7%, when 2019 is compared to 2018, principally due to the lower regular assessment base and elimination of the additional surcharge of 4.5 cents per $100 of assessment base during the third quarter of 2018.

LHFI totaled $9.336 billion at December 31, 2019, an increase of $499.8 million, or 5.7%, compared to the balance at December 31, 2018. The increase in LHFI during 2019 was principally due to net increases in loans secured by real estate in all five market regions partially offset by declines in commercial and industrial loans in Trustmark’s Mississippi and Tennessee market regions.

At December 31, 2019, nonperforming assets, excluding acquired loans, totaled $82.5 million, a decrease of $13.8 million, or 14.4%, compared to December 31, 2018 due to declines in both nonaccrual LHFI and other real estate. Total nonaccrual LHFI were $53.2 million at December 31, 2019, representing a decrease of $8.4 million, or 13.6%, relative to December 31, 2018 principally due to a reduction and charge-off of one large commercial nonaccrual credit in the Mississippi market region and one large commercial nonaccrual credit in the Texas market region, for which reserves were previously established, as well as foreclosure of one large nonaccrual healthcare credit and reduction of one large commercial nonaccrual credit in the Mississippi market, which were largely offset by a large commercial nonaccrual credit in the Mississippi market region that was placed on nonaccrual during 2019. The

percentage of loans, excluding acquired loans, that are 30 days or more past due and nonaccrual LHFI decreased in 2019 to 1.28% compared to 1.56% in 2018 and 1.53% in 2017. Other real estate declined $5.4 million, or 15.6%, during 2019 as a result of properties sold and write-downs on foreclosed properties across all five market regions, partially offset by new properties foreclosed in Trustmark’s Mississippi, Alabama, and Tennessee market regions.

Total deposits were $11.246 billion at December 31, 2019, a decrease of $118.9 million, or 1.0% compared to December 31, 2018, as a result of declines in both noninterest-bearing and interest-bearing deposits. During 2019, noninterest-bearing deposits decreased $46.4 million, or 1.6%, primarily due to a decline in public demand deposit accounts partially offset by growth in commercial and consumer demand deposit accounts. Interest-bearing deposits decreased $72.5 million, or 0.9%, principally due to declines in public interest checking accounts and all categories of time deposits, which were largely offset by growth in consumer money market deposit accounts and commercial interest checking accounts.

Trustmark uses short-term borrowings to fund growth of earning assets in excess of deposits growth. Federal funds purchased and repurchase agreements totaled $256.0 million at December 31, 2019, an increase of $205.5 million when compared to December 31, 2018, primarily due to an increase in upstream federal funds purchased principally as a result of the decline in public deposits.

~~Critical Accounting Policies~~

Trustmark’s consolidated financial statements are prepared in accordance with GAAP and follow general practices within the financial services industry. Application of these accounting principles requires Management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, actual financial results could differ from those estimates.

~~Allowance for Loan Losses, LHFI~~

The allowance for loan losses, LHFI is established through provisions for estimated loan losses charged against net income. The allowance reflects Management’s best estimate of the probable loan losses related to specifically identified LHFI as well as probable incurred loan losses in the remaining loan portfolio and requires considerable judgment. The allowance is based upon Management’s current judgments about the credit quality of the loan portfolio, including all internal and external factors that impact loan collectibility. Accordingly, the allowance is based upon both past events and current economic conditions.

Trustmark’s allowance for loan losses, LHFI consists of three components: (i) a historical valuation allowance determined in accordance with FASB ASC Topic 450, “Contingencies,” based on historical loan loss experience for LHFI with similar characteristics and trends, (ii) a specific valuation allowance determined in accordance with FASB ASC Topic 310 based on probable losses on specific LHFI and (iii) a qualitative risk valuation allowance determined in accordance with FASB ASC Topic 450 based on general economic conditions and other specific internal and external qualitative risk factors. Each of these components calls for estimates, assumptions and judgments, in particular, the qualitative risk valuation allowance requires significant judgment by Management in developing their estimate. Trustmark’s independent auditor, Crowe LLP, identified Management’s estimate of the qualitative risk valuation allowance as a critical audit matter, please see Report of Independent Registered Public Accounting Firm included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

A significant shift in one or more factors included in the allowance for loan loss methodology could result in a material change to Trustmark’s allowance for loan losses, LHFI. For example, if there were changes in one or more of the estimates, assumptions or judgments used as they relate to a portfolio of commercial LHFI, Trustmark could find that it needs to increase the level of future provisions for possible loan losses with respect to that portfolio. Additionally, credit deterioration of specific borrowers due to changes in these factors could cause the internally assigned risk rating to shift to a more severe category. As a result, Trustmark could

find that it needs to increase the level of future provisions for possible loan losses with respect to these LHFI. Given the nature of many of these estimates, assumptions and judgments, it is not possible to provide meaningful estimates of the impact of any such potential shifts.

For a complete description of Trustmark’s allowance for loan loss methodology, please see Note 5 – LHFI and Allowance for Loan Losses, LHFI included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~Mortgage Servicing Rights (MSR)~~

The fair value of the MSR is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income and other ancillary income such as late fees. Management reviews all significant assumptions quarterly. Mortgage loan prepayment speeds, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change.

At December 31, 2019, the MSR fair value was $79.4 million. The impact on the MSR fair value of either a 10% adverse change in prepayment speeds or a 100 basis point increase in discount rates at December 31, 2019, would be a decline in fair value of approximately $3.5 million and $2.7 million, respectively. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts.

~~Goodwill and Identifiable Intangible Assets~~

Trustmark records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangible assets, at fair value as required by FASB ASC Topic 805. The carrying amount of goodwill at December 31, 2019 totaled $334.6 million for the General Banking Segment and $45.0 million for the Insurance Segment, a consolidated total of $379.6 million. Trustmark’s goodwill is not amortized but is subject to annual tests for impairment or more often if events or circumstances indicate it may be impaired. Trustmark’s identifiable intangible assets, which totaled $7.3 million at December 31, 2019, are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount.

The initial recording and subsequent impairment testing of goodwill requires subjective judgments concerning estimates of the fair value of the acquired assets. The goodwill impairment test is performed in two phases. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional procedure must be performed. That additional procedure, or a second step, compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. An impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. Trustmark performed an annual impairment test of goodwill for reporting units contained in both the General Banking and Insurance Segments as of October 1, 2019, 2018, and 2017, respectively, which indicated that no impairment charge was required. The impairment test for the General Banking Segment utilized valuations based on comparable deal values for financial institutions while the test for the Insurance Segment utilizes varying valuation scenarios for the multiple of earnings before interest, income taxes, depreciation and amortization method based on recent acquisition activity. Based on this analysis, Trustmark concluded that the fair value of the reporting units exceeded the carrying value for both the General Banking Segment and the Insurance Segment; therefore, no impairment charge was required. Significant changes in future profitability and value of its reporting units could affect Trustmark’s impairment evaluation.

The carrying amount of Trustmark’s identifiable intangible assets subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition. That assessment is based on the carrying amount of the intangible assets subject to amortization at the date it is tested for recoverability. Intangible assets subject to

~~amortization shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.~~

Fair values may be determined using market prices, comparison to similar assets, market multiples and other determinants. Factors that may significantly affect the estimates include, among others, competitive forces, customer behavior and attrition, changes in revenue growth trends and specific industry or market sector conditions. Other key judgments in accounting for intangibles include determining the useful life of the particular asset and classifying assets as either goodwill (which does not require amortization) or identifiable intangible assets (which does require amortization).

~~Other Real Estate~~

Other real estate includes assets that have been acquired in satisfaction of debt through foreclosure and is carried at the lower of cost or estimated fair value less the estimated cost of disposition. Fair value is based on independent appraisals and other relevant factors. Valuation adjustments required at foreclosure are charged to the allowance for loan losses. Other real estate is revalued on an annual basis or more often if market conditions necessitate. An other real estate specific reserve may be recorded through other real estate expense for declines in fair value subsequent to foreclosure based on recent appraisals or changes in market conditions. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged against a reserve specific to other real estate or to noninterest expense in other real estate expense if a reserve does not exist. Significant judgments and complex estimates are required in estimating the fair value of other real estate, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. As a result, the net proceeds realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to determine the fair value of other real estate.

~~Contingent Liabilities~~

Trustmark estimates contingent liabilities based on Management’s evaluation of the probability of outcomes and their ability to estimate the range of exposure. As stated in FASB ASC Topic 450, “Contingencies,” a liability is contingent if the amount is not presently known but may become known in the future as a result of the occurrence of some uncertain future event. Accounting standards require that a liability be recorded if Management determines that it is probable that a loss has occurred, and the loss can be reasonably estimated. It is implicit in this standard that it must be probable that the loss will be confirmed by some future event. As part of the estimation process, Management is required to make assumptions about matters that are, by their nature, highly uncertain. The assessment of contingent liabilities, including legal contingencies and income tax liabilities, involves the use of critical estimates, assumptions and judgments. Management’s estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that future events, such as court decisions or Internal Revenue Service (IRS) positions, will not differ from Management’s assessments. Whenever practicable, Management consults with outside experts (attorneys, consultants, claims administrators, etc.) to assist with the gathering and evaluation of information related to contingent liabilities.

~~Recent Legislative and Regulatory Developments~~

~~For information regarding legislation and regulation applicable to Trustmark, see the section captioned “Supervision and Regulation” included in Part I. Item 1. – Business of this report.~~

~~Non-GAAP Financial Measures~~

measures to investors. As a result, Trustmark encourages readers to consider its audited consolidated financial statements and the notes related thereto in their entirety and not to rely on any single financial measure.

~~The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP for the periods presented ($ in thousands, except per share data):~~

Years Ended December 31,

TANGIBLE EQUITY

2019

2018

2017

AVERAGE BALANCES

Total shareholders' equity

$
1,622,013

$
1,586,877

$
1,560,884

Less:   Goodwill

(379,627
)

(379,627
)

(375,947
)
  Identifiable intangible assets

(9,212
)

(13,751
)

(18,885
)
Total average tangible equity

$
1,233,174

$
1,193,499

$
1,166,052

PERIOD END BALANCES

Total shareholders' equity

$
1,660,702

$
1,591,453

$
1,571,701

Less:   Goodwill

(379,627
)

(379,627
)

(379,627
)
  Identifiable intangible assets

(7,343
)

(11,112
)

(16,360
)
Total tangible equity
(a)

$
1,273,732

$
1,200,714

$
1,175,714

TANGIBLE ASSETS

Total assets

$
13,497,877

$
13,286,460

$
13,797,953

Less:   Goodwill

(379,627
)

(379,627
)

(379,627
)
  Identifiable intangible assets

(7,343
)

(11,112
)

(16,360
)
Total tangible assets
(b)

$
13,110,907

$
12,895,721

$
13,401,966

Risk-weighted assets
(c)

$
11,002,877

$
10,803,313

$
10,566,818

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION

Net income

$
150,460

$
149,584

$
105,630

Plus:   Intangible amortization net of tax

3,088

3,938

3,810

Net income adjusted for intangible amortization

$
153,548

$
153,522

$
109,440

Period end common shares outstanding
(d)

64,200,111

65,834,395

67,746,094

TANGIBLE EQUITY MEASUREMENTS

Return on average tangible equity (1)

12.45
%

12.86
%

9.39
%
Tangible equity/tangible assets
(a)/(b)

9.72
%

9.31
%

8.77
%
Tangible equity/risk-weighted assets
(a)/(c)

11.58
%

11.11
%

11.13
%
Tangible book value
(a)/(d)*1,000

$
19.84

$
18.24

$
17.35

COMMON EQUITY TIER 1 CAPITAL (CET1) - BASEL III

Total shareholders' equity

$
1,660,702

$
1,591,453

$
1,571,701

AOCI-related adjustments (2)

23,600

55,679

48,248

CET1 adjustments and deductions:

Goodwill net of associated deferred tax liabilities (DTLs)

(365,738
)

(365,779
)

(366,461
)
Other adjustments and deductions for CET1 (3)

(5,896
)

(9,815
)

(10,248
)
CET1 capital
(e)

1,312,668

1,271,538

1,243,240

Additional tier 1 capital instruments plus related surplus

60,000

60,000

60,000

Less: Additional tier 1 capital deductions

—

—

(2
)
Additional tier 1 capital

60,000

60,000

59,998

Tier 1 capital

$
1,372,668

$
1,331,538

$
1,303,238

Common equity tier 1 risk-based capital ratio
(e)/(c)

11.93
%

11.77
%

11.77
%

~~(1)~~

~~Calculated using net income adjusted for intangible amortization divided by total average tangible equity.~~

~~(2)~~

The December 31, 2017 amount contains a reclassification adjustment of $8.5 million from AOCI to retained earnings as allowed by regulatory agencies in an interagency statement released on January 18, 2018 to address disproportionate tax effects in AOCI resulting from the enactment of the Tax Reform Act and the application of FASB ASC Topic 740, “Income Taxes.”

~~(3)~~

~~Includes other intangible assets, net of DTLs, disallowed deferred tax assets, threshold deductions and transition adjustments, as applicable.~~

~~Significant Non-routine Transactions~~

differences caused by non-operational and unusual or non-recurring items. Readers are cautioned that these adjustments are not permitted under GAAP. Trustmark encourages readers to consider its audited consolidated financial statements and the notes related thereto, included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, in their entirety, and not to rely on any single financial measure.

Years Ended December 31,

2019

2018

2017

Amount

Diluted EPS

Amount

Diluted EPS

Amount

Diluted EPS

Net Income (GAAP)

$
150,460

$
2.323

$
149,584

$
2.211

$
105,630

$
1.556

Significant non-routine transactions:

Re-measurement of net deferred taxes

—

—

—

—

25,619

0.377

Elimination of deferred tax valuation allowance

—

—

—

—

(8,650
)

(0.127
)
Defined benefit plan termination, net of tax

—

—

—

—

10,895

0.160

Reliance merger transaction expenses, net of tax

—

—

—

—

1,999

0.029

Non-taxable gain on acquired life insurance
proceeds

—

—

—

—

(4,894
)

(0.072
)
Net Income adjusted for significant
non-routine transactions (Non-GAAP)

$
150,460

$
2.323

$
149,584

$
2.211

$
130,599

$
1.923

Reported
(GAAP)

Adjusted
(Non-GAAP)

Reported
(GAAP)

Adjusted
(Non-GAAP)

Reported
(GAAP)

Adjusted
(Non-GAAP)

Return on average equity

9.28
%

n/a

9.43
%

n/a

6.77
%

8.37
%
Return on average tangible equity

12.45
%

n/a

12.86
%

n/a

9.39
%

11.53
%
Return on average assets

1.11
%

n/a

1.11
%

n/a

0.77
%

0.95
%

~~Re-measurement of Net Deferred Taxes~~

During the fourth quarter of 2017, Trustmark re-measured its net deferred tax assets subsequent to the enactment of the Tax Reform Act which resulted in the reduction of the corporate federal income tax rate. In accordance with FASB ASC Topic 740, Trustmark recorded a one-time increase in deferred income tax expense of $25.6 million for the year ended December 31, 2017.

~~Elimination of Deferred Tax Valuation Allowance~~

During 2013, a deferred tax valuation allowance was created as a result of Trustmark’s merger with BancTrust Financial Group, Inc. (BancTrust) and was established to reduce deferred tax assets to the amount that was more likely than not to be realized in future years. Trustmark has continually evaluated this allowance since inception and, based on the weight of the available evidence, has determined that the deferred tax assets will not be subject to the limitations of Internal Revenue Code, Section 382 on the deductibility of built-in losses in future years. During the fourth quarter of 2017, Trustmark eliminated the valuation allowance and recorded a one-time decrease in deferred income tax expense of $8.7 million.

~~Defined Benefit Pension Plan Termination Expense~~

As previously reported, on July 26, 2016, the Board of Directors of Trustmark authorized the termination of the Trustmark Capital Accumulation Plan (the Plan), a noncontributory tax-qualified defined benefit pension plan, effective as of December 31, 2016. The final distributions were made from current plan assets and a one-time pension settlement expense of $17.6 million, before taxes, which is included in noninterest expense for the year ended December 31, 2017.

~~Reliance Merger Transaction Expenses~~

On April 7, 2017, Trustmark completed its previously announced merger with Reliance. The operations of Reliance are included in Trustmark’s operating results from April 7, 2017 and did not have a material impact on Trustmark’s results of operations. During the second quarter of 2017, Trustmark included non-routine merger transaction expenses in other expense totaling $3.2 million, before tax.

~~Non-taxable Gain on Acquired Life Insurance Proceeds~~

During the second quarter of 2017, Trustmark received non-routine, non-taxable proceeds related to life insurance acquired in a previous acquisition. Included in other income, net for the year ended December 31, 2017 were non-routine, non-taxable proceeds of $4.9 million.

~~Results of Operations~~

~~Net Interest Income~~

Net interest income-FTE for 2019 increased $7.2 million, or 1.7%, when compared with 2018. The net interest margin increased 8 basis points to 3.62% for 2019 when compared to 2018. The increase in the net interest margin was principally due to growth in the yield on the LHFI and LHFS portfolios, run-off of maturing investment securities and a favorable funding mix, partially offset by higher costs of interest-bearing deposits. The net interest margin excluding acquired loans, which equals the reported net interest income-FTE excluding interest and fees on acquired loans, as a percentage of average earning assets excluding average acquired loans, for 2019 was 3.58%, an increase of 12 basis point when compared to 2018, due to the factors discussed above.

Average interest-earning assets for 2019 totaled $12.131 billion compared to $12.194 billion for 2018 a decrease of $62.9 million, or 0.5%. The decline in average earning assets during 2019 was primarily due to decreases in average taxable securities of $507.9 million, or 17.3%, and average acquired loans of $90.9 million, or 50.6%, partially offset by an increase in average loans (LHFS and LHFI) of $504.5 million, or 5.7%. The decrease in average taxable securities was primarily due to calls, maturities and pay-downs of the underlying loans of government-sponsored enterprise (GSE) guaranteed securities. The decline in average acquired loans during 2019 was primarily attributable to pay-downs and pay-offs of the acquired loans. The increase in average loans (LHFS and LHFI) was primarily attributable to the $499.8 million, or 5.7%, increase in the LHFI portfolio when balances at December 31, 2019 are compared to balances at December 31, 2018. This increase primarily represented net increases in loans secured by real estate in all five market regions partially offset by declines commercial and industrial loans in Trustmark’s Mississippi and Tennessee market regions.

During 2019, interest and fees on LHFS and LHFI-FTE increased $44.4 million, or 10.9%, when compared to 2018, due principally to growth in the LHFI portfolio, while the yield on loans (LHFS and LHFI) increased 23 basis points to 4.87% as a result of higher interest rates during 2019. During 2019, interest on taxable securities decreased $11.4 million, or 17.3%, compared to 2018, primarily due to the run-off of maturing investment securities. The yield on total securities for 2019 remained flat at 2.28% compared to 2018. Interest and fees on acquired loans declined $8.7 million, or 51.1%, when 2019 is compared to 2018, while the yield on acquired loans decreased 10 basis points to 9.42%, primarily due to declines in accretion income and loan recovery from settlement of debt related to loans acquired in each of the BancTrust, Bay Bank, Heritage and Reliance transactions and deferred fee amortization and other interest and fees related to loans acquired in the Reliance merger, as a result of paydowns/pay-offs of these loans as well as acquired loans transferred to LHFI during 2018. As a result of these factors, interest income-FTE increased $25.0 million, or 5.0%, when 2019 is compared to 2018, while the yield on total earning assets increased 22 basis points to 4.31%.

Average interest-bearing liabilities for 2019 totaled $8.741 billion compared to $8.797 billion for 2018, a decrease of $56.7 million, or 0.6%. The decrease in average interest-bearing liabilities was principally due to declines in average other borrowings and average federal funds purchased and repurchase agreements which were largely offset by an increase in average interest-bearing deposits. Average other borrowings for 2019 decreased $235.2 million, or 74.0%, when compared to 2018, primarily reflecting a decline in the average balance of outstanding short-term FHLB advances obtained from the FHLB of Dallas. Average federal funds purchased and repurchase agreements for 2019 declined $218.7 million, or 66.4%, when compared to 2018, primarily due to a decrease in upstream federal funds purchased as a result of the reduction in Trustmark’s external funding needs during 2018 due to deposit growth out-pacing growth in LHFI and the run-off of maturing investment securities. Average interest-bearing deposits for 2019 increased $397.3 million, or 4.9%, when compared to 2018 due principally to growth in average interest-bearing demand deposits primarily as a result of increases in interest rates in general.

Total interest expense for 2019 increased $17.7 million, or 26.8%, when compared with 2018, principally due to an increase in interest on deposits, in conjunction with rising interest rates in general, partially offset by declines in other interest expense (excluding interest on junior subordinated debt securities) and interest expense on federal funds purchased and repurchase agreements. Interest on deposits for 2019 increased $25.2 million, or 46.8%, while the rate on interest-bearing deposits increased 26 basis points to 0.93% when compared to 2018, principally due to increases in average balances of interest-bearing demand deposits as well as higher interest rates in general. Other interest expense for 2019 decreased $4.3 million, or 86.1%, while the rate on other borrowings decreased 73 basis points to 0.85% when compared to 2018, principally due to a decrease in the average balance of and the related interest expense on short-term FHLB advances. Interest expense on federal funds purchased and repurchase agreements declined $3.4 million, or 70.3%, while the rate of federal fund purchased and repurchase agreements declined 17 basis points to 1.28% when 2019 is compared to 2018, primarily due to Trustmark’s reduction of its funding from external sources at the end of 2018 as well as the FRB’s reduction of the target rate for federal funds during the second half of 2019. As a result of these factors, the overall rate on interest-bearing liabilities increased 21 basis points to 0.96% when 2019 is compared with 2018.

~~The following table provides the tax equivalent basis yield or rate for each component of the tax equivalent net interest margin for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Average

Yield/

Average

Yield/

Average

Yield/

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate

Assets

Interest-earning assets:

Federal funds sold and securities purchased
   under reverse repurchase agreements

$
9,529

$
240

2.52
%

$
716

$
14

1.96
%

$
2,229

$
33

1.48
%
Securities available for sale:

Taxable

1,633,496

37,717

2.31
%

1,990,332

45,380

2.28
%

2,296,070

52,806

2.30
%
Nontaxable

29,948

1,116

3.73
%

47,112

1,636

3.47
%

73,373

3,042

4.15
%
Securities held to maturity:

Taxable

799,726

16,932

2.12
%

950,836

20,702

2.18
%

1,091,108

23,386

2.14
%
Nontaxable

26,874

1,050

3.91
%

30,336

1,194

3.94
%

32,874

1,575

4.79
%
Loans (LHFS and LHFI)

9,302,037

452,578

4.87
%

8,797,498

408,175

4.64
%

8,412,673

362,795

4.31
%
Acquired loans

88,903

8,373

9.42
%

179,808

17,115

9.52
%

284,898

24,478

8.59
%
Other earning assets

240,622

5,363

2.23
%

197,431

4,196

2.13
%

80,468

1,466

1.82
%
Total interest-earning assets

12,131,135

523,369

4.31
%

12,194,069

498,412

4.09
%

12,273,693

469,581

3.83
%
Other assets

1,452,012

1,364,420

1,526,661

Allowance for loan losses

(83,559
)

(85,252
)

(84,708
)

Total Assets

$
13,499,588

$
13,473,237

$
13,715,646

Liabilities and Shareholders' Equity

Interest-bearing liabilities:

Interest-bearing demand deposits

$
3,051,170

35,428

1.16
%

$
2,543,463

18,479

0.73
%

$
2,114,475

6,820

0.32
%
Savings deposits

3,650,178

19,462

0.53
%

3,720,987

17,980

0.48
%

3,308,027

6,047

0.18
%
Time deposits

1,783,928

24,281

1.36
%

1,823,562

17,477

0.96
%

1,730,569

9,850

0.57
%
Federal funds purchased and securities sold
   under repurchase agreements

110,915

1,420

1.28
%

329,649

4,788

1.45
%

512,085

4,152

0.81
%
Other borrowings

82,476

697

0.85
%

317,687

5,016

1.58
%

1,235,914

13,547

1.10
%
Junior subordinated debt securities

61,856

2,615

4.23
%

61,856

2,452

3.96
%

61,856

1,829

2.96
%
Total interest-bearing liabilities

8,740,523

83,903

0.96
%

8,797,204

66,192

0.75
%

8,962,926

42,245

0.47
%
Noninterest-bearing demand deposits

2,918,836

2,892,033

3,028,982

Other liabilities

218,216

197,123

162,854

Shareholders' equity

1,622,013

1,586,877

1,560,884

Total Liabilities and Shareholders' Equity

$
13,499,588

$
13,473,237

$
13,715,646

Net Interest Margin

439,466

3.62
%

432,220

3.54
%

427,336

3.48
%

Less tax equivalent adjustments:

Investments

455

594

1,616

Loans

12,422

12,206

18,170

Net Interest Margin per Consolidated
   Statements of Income

$
426,589

$
419,420

$
407,550

2019 Compared to 2018

2018 Compared to 2017

Increase (Decrease) Due To:

Increase (Decrease) Due To:

Yield/

Yield/

Volume

Rate

Net

Volume

Rate

Net

Interest earned on:

Federal funds sold and securities purchased under
   reverse repurchase agreements

$
221

$
5

$
226

$
(27
)

$
8

$
(19
)
Securities available for sale:

Taxable

(8,252
)

589

(7,663
)

(6,971
)

(455
)

(7,426
)
Nontaxable

(634
)

114

(520
)

(964
)

(442
)

(1,406
)
Securities held to maturity:

Taxable

(3,213
)

(557
)

(3,770
)

(3,105
)

421

(2,684
)
Nontaxable

(135
)

(9
)

(144
)

(116
)

(265
)

(381
)
Loans, net of unearned income (LHFS and LHFI)

23,818

20,585

44,403

16,972

28,408

45,380

Acquired loans

(8,564
)

(178
)

(8,742
)

(9,789
)

2,426

(7,363
)
Other earning assets

961

206

1,167

2,444

286

2,730

Total interest-earning assets

4,202

20,755

24,957

(1,556
)

30,387

28,831

Interest paid on:

Interest-bearing demand deposits

4,290

12,659

16,949

1,594

10,065

11,659

Savings deposits

(346
)

1,828

1,482

831

11,102

11,933

Time deposits

(385
)

7,189

6,804

555

7,072

7,627

Federal funds purchased and securities sold under
   repurchase agreements

(2,863
)

(505
)

(3,368
)

(1,839
)

2,475

636

Other borrowings

(2,659
)

(1,660
)

(4,319
)

(12,849
)

4,318

(8,531
)
Junior subordinated debt securities

—

163

163

—

623

623

Total interest-bearing liabilities

(1,963
)

19,674

17,711

(11,708
)

35,655

23,947

Change in net interest income on a tax
   equivalent basis

$
6,165

$
1,081

$
7,246

$
10,152

$
(5,268
)

$
4,884

~~Provision for Loan Losses, LHFI~~

The provision for loan losses, LHFI is determined by Management as the amount necessary to adjust the allowance for loan losses, LHFI to a level, which, in Management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan losses, LHFI reflects loan quality trends, including the levels of and trends related to nonaccrual LHFI, past due LHFI, potential problem LHFI, criticized LHFI, net charge-offs or recoveries and growth in the LHFI portfolio among other factors. Accordingly, the amount of the provision reflects the necessary increases or decreases in the allowance for loan losses, LHFI related to adjustments for specific loans or loan pools as a result of growth in the portfolio and evaluation of current impairment analyses, actions taken with respect to risk ratings on loans and other adjustments resulting from changes in qualitative factors.

The provision for loan losses, LHFI totaled $10.8 million for 2019, $18.0 million for 2018 and $15.1 million for 2017. The decrease in the provision for loan losses, LHFI when 2019 is compared to 2018 was primarily due to decreases in net charge-offs and specific reserves for impaired LHFI, partially offset by increases in reserves required as a result of changes in qualitative reserve factors and growth of the LHFI portfolio. See the section captioned “Allowance for Loan Losses, LHFI” for further analysis of the provision for loan losses, LHFI.

~~Provision for Loan Losses, Acquired Loans~~

The provision for loan losses, acquired loans is recognized subsequent to acquisition to the extent it is probable that Trustmark will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition, considering both the timing and amount of those expected cash flows. Provisions may be required when

actual losses of unpaid principal incurred exceed previous loss expectations to date, or future cash flows previously expected to be collectible are no longer probable of collection. The provision for loan losses, acquired loans is reflected as a valuation allowance netted against the carrying value of the acquired loans.

The increase in the provision for loan losses, acquired loans when 2019 is compared to 2018 was principally due to changes in expectations based on the periodic re-estimations performed during the respective periods related to the loans acquired in the BancTrust merger, partially offset by the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions that were transferred from acquired impaired loans to LHFI during 2018.

~~The following table presents the provision for loan losses, acquired loans, by acquisition for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

BancTrust

$
42

$
(1,415
)

$
(6,089
)
Bay Bank

—

377

(1,323
)
Heritage

—

60

(122
)
Reliance

—

(27
)

139

Total provision for loan losses, acquired loans

$
42

$
(1,005
)

$
(7,395
)

~~Noninterest Income~~

Noninterest income represented 30.5%, 30.6% and 31.2% of total revenue, before securities gains (losses), net in 2019, 2018 and 2017, respectively. The following table provides the comparative components of noninterest income for the periods presented ($ in thousands):

Years Ended December 31,

2019

2018

2017

Amount

% Change

Amount

% Change

Amount

% Change

Service charges on deposit accounts

$
42,603

-2.5
%

$
43,702

-0.7
%

$
44,003

-2.8
%
Bank card and other fees

31,736

9.8
%

28,905

2.2
%

28,286

1.4
%
Mortgage banking, net

29,822

-14.0
%

34,674

16.0
%

29,902

6.0
%
Insurance commissions

42,396

4.7
%

40,481

6.1
%

38,168

3.8
%
Wealth management

30,679

1.1
%

30,338

—

30,340

-0.5
%
Other, net

9,809

45.6
%

6,736

-51.7
%

13,949

n/m

Total Noninterest Income before securities
gains (losses), net

187,045

1.2
%

184,836

0.1
%

184,648

6.0
%
Securities gains (losses), net

—

—

—

-100.0
%

15

n/m

Total Noninterest Income

$
187,045

1.2
%

$
184,836

0.1
%

$
184,663

6.2
%

~~n/m - percentage changes greater than +/- 100% are not considered meaningful~~

Changes in various components of noninterest income for the year ended December 31, 2019 are discussed in further detail below. For analysis of Trustmark’s insurance commissions and wealth management income, please see the section captioned “Results of Segment Operations.”

~~Bank Card and Other Fees~~

~~The increase in bank card and other fees when 2019 is compared to 2018 was principally due to increases in income from customer derivatives, interchange income and ATM surcharges.~~

~~Mortgage Banking, Net~~

~~The following table illustrates the components of mortgage banking, net included in noninterest income for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Amount

% Change

Amount

% Change

Amount

% Change

Mortgage servicing income, net

$
22,883

2.9
%

$
22,248

2.7
%

$
21,663

4.5
%
Change in fair value-MSR from runoff

(11,835
)

0.5
%

(11,774
)

9.2
%

(10,780
)

6.7
%
Gain on sales of loans, net (1)

30,296

39.0
%

21,800

16.2
%

18,765

-8.2
%
Mortgage banking income before net hedge
ineffectiveness

41,344

28.1
%

32,274

8.9
%

29,648

-4.6
%
Change in fair value-MSR from market changes

(21,078
)

n/m

7,342

n/m

(1,050
)

n/m

Change in fair value of derivatives

9,556

n/m

(4,942
)

n/m

1,304

n/m

Net hedge ineffectiveness

(11,522
)

n/m

2,400

n/m

254

n/m

Mortgage banking, net

$
29,822

-14.0
%

$
34,674

16.0
%

$
29,902

6.0
%

~~n/m - percentage changes greater than +/- 100% are not considered meaningful~~

~~(1)~~

~~The mortgage loan valuation adjustment, previously shown as “Other, net”, has been included in “Gain on sales of loans, net” for all periods presented.~~

The decrease in mortgage banking, net for 2019 when compared to 2018 was principally due to the net negative hedge ineffectiveness partially offset by an increase in the gain on sales of loans, net. The net negative hedge ineffectiveness for the year ended December 31, 2019 was primarily the result of lower interest rates, a flatter yield curve, increased market volatility and greater borrower prepayment capacity. Mortgage loan production increased $361.1 million, or 25.8%, during 2019 to total $1.762 billion. Mortgage loan production increased $45.8 million, or 3.4%, during 2018 to total $1.401 billion. Loans serviced for others totaled $7.157 billion at December 31, 2019, compared with $6.835 billion at December 31, 2018, and $6.624 billion at December 31, 2017.

Representing a significant component of mortgage banking income is gain on sales of loans, net. The increase in the gain on sales of loans, net when 2019 is compared to 2018 resulted primarily from higher volumes of loans sold and an increase in the mortgage loan valuation adjustment. Loan sales increased $311.3 million, or 28.5%, during 2019 to total $1.404 billion compared to a decrease of $86.5 million, or 7.3%, during 2018 to total $1.092 billion. The increases in loan sales during 2019 was principally due to the increase in mortgage lending activity as a result of lower interest rates.

~~Other Income, Net~~

~~The following table illustrates the components of other income, net included in noninterest income for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Amount

% Change

Amount

% Change

Amount

% Change

Partnership amortization for tax credit purposes

$
(7,644
)

-12.2
%

$
(8,707
)

-8.9
%

$
(9,560
)

-3.6
%
Increase in life insurance cash surrender value

7,202

1.1
%

7,121

-0.1
%

7,125

3.4
%
Other miscellaneous income

10,251

23.2
%

8,322

-49.2
%

16,384

89.4
%
Total other, net

$
9,809

45.6
%

$
6,736

-51.7
%

$
13,949

n/m

~~n/m - percentage changes greater than +/- 100% are not considered meaningful~~

The increase in other income, net when 2019 is compared to 2018 was primarily due to an increase in other miscellaneous income, principally due to net gains on sales of premises and equipment and an increase in cash management fees, and a decrease in the amortization of tax credit partnerships.

~~Noninterest Expense~~

~~The following table illustrates the comparative components of noninterest expense for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Amount

% Change

Amount

% Change

Amount

% Change

Salaries and employee benefits

$
247,717

4.1
%

$
238,033

3.8
%

$
229,265

—

Defined benefit plan termination

—

—

—

-100.0
%

17,644

n/m

Services and fees

73,315

10.4
%

66,382

9.0
%

60,893

3.7
%
Net occupancy-premises

26,149

-2.1
%

26,703

3.6
%

25,767

3.1
%
Equipment expense

23,733

-4.4
%

24,830

1.5
%

24,453

0.9
%
Other real estate expense:

Write-downs

2,544

n/m

873

-73.5
%

3,296

-26.1
%
Net (gain)/loss on sale

291

n/m

(700
)

-66.5
%

(2,091
)

-70.3
%
Carrying costs

1,071

-41.4
%

1,829

-25.9
%

2,467

-21.8
%
Total other real estate expense, net

3,906

95.1
%

2,002

-45.5
%

3,672

n/m

FDIC assessment expense

6,444

-31.7
%

9,429

-14.4
%

11,010

-2.1
%
Other expense

47,738

-0.6
%

48,036

-16.4
%

57,465

-1.5
%
Total noninterest expense

$
429,002

3.3
%

$
415,415

-3.4
%

$
430,169

5.6
%

~~n/m - percentage changes greater than +/- 100% are not considered meaningful~~

Changes in the various component of noninterest expense for the year ended December 31, 2019 are discussed in further detail below. Management considers disciplined expense management a key area of focus in the support of improving shareholder value.

~~Salaries and Employee Benefits~~

The increase in salaries and employee benefits, the largest component of noninterest expense, when 2019 is compared to 2018 was primarily due to increases in commission expense related to improvements in mortgage originations and the insurance lines of business, salaries expense primarily due to general merit increases, insurance expense related to Trustmark’s health plans and stock compensation.

~~Services and Fees~~

The increase in services and fees expense when 2019 is compared to 2018 was primarily due to increases in data processing charges related to software, professional services and fees and advertising expense.

~~Other Real Estate Expense, Net~~

The increase in other real estate expense, net for 2019 compared to 2018 was principally due to an increase in write-downs of other real estate as well as a net loss on sales of other real estate properties. For additional analysis of other real estate and foreclosure expenses, please see the section captioned “Nonperforming Assets, Excluding Acquired Loans.”

~~FDIC Assessment Expense~~

The decrease in the FDIC assessment expense when 2019 is compared to 2018 was principally due to the lower regular assessment base and elimination of the additional surcharge of 4.5 cents per $100 of assessment base during the third quarter of 2018.

~~Other Expense~~

~~The following table illustrates the comparative components of other noninterest expense for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Amount

% Change

Amount

% Change

Amount

% Change

Loan expense

$
11,554

4.2
%

$
11,086

1.6
%

$
10,908

-10.8
%
Amortization of intangibles

4,116

-21.6
%

5,248

-14.9
%

6,169

-10.2
%
Other miscellaneous expense

32,068

1.2
%

31,702

-21.5
%

40,388

3.0
%
Total other expense

$
47,738

-0.6
%

$
48,036

-16.4
%

$
57,465

-1.5
%

The slight decrease in other expense for 2019 when compared to 2018 was principally due to the decrease in amortization of intangibles, which was largely offset by an increase in other miscellaneous expense due to charitable contributions related to the Mississippi Children’s Promise Act.

~~Results of Segment Operations~~

Trustmark’s operations are managed along three operating segments: General Banking, Wealth Management and Insurance. A description of each segment and the methodologies used to measure financial performance and financial information by reportable segment are included in Note 22 – Segment Information located in Part II. Item 8. – Financial Statements and Supplementary Data of this report. During the first quarter of 2019, Trustmark revised the composition of its operating segments by moving the Private Banking Group from the General Banking Segment to the Wealth Management Segment as a result of a change in supervision of this group for segment reporting purposes. Prior periods include reclassifications to conform to current period presentation.

~~The following table provides the net income by reportable segment for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

General Banking

$
136,364

$
138,541

$
96,846

Wealth Management

6,141

3,671

3,104

Insurance

7,955

7,372

5,680

Consolidated Net Income

$
150,460

$
149,584

$
105,630

~~General Banking~~

Net interest income for the General Banking Segment for 2019 increased $7.1 million, or 1.7%, when compared with 2018. The increase in net interest income was principally due to increases in interest and fees on LHFS and LHFI and decreases in other interest expense and interest expense on federal funds purchased and repurchase agreements, which were largely offset by an increase in interest on deposits and declines in interest on securities and interest and fees on acquired loans. Net interest income for the General Banking Segment for 2018 increased $13.1 million, or 3.2%, when compared with 2017. The increase in net interest income was principally due to increases in interest and fees on LHFS and LHFI and other interest income and a decrease in other interest expense, partially offset by an increase in interest on deposits and declines in interest on securities and interest and fees on acquired loans. The provision for loan losses, net during 2019 totaled $10.8 million compared with $17.0 million during 2018 and $7.5 million during 2017. For more information on these net interest income items, please see the sections captioned “Financial Highlights” and “Results of Operations.”

Noninterest income for the General Banking Segment decreased $175 thousand, or 0.2%, during 2019 compared to a decrease of $2.1 million, or 1.8%, during 2018. The slight decrease in noninterest income for the General Banking Segment during 2019 was primarily due to the declines in mortgage banking, net and service charges on deposit accounts, which were largely offset by increases in bank card and other fees and other noninterest income, net. The decrease in noninterest income for the General Banking Segment during 2018 was primarily due to the non-taxable life insurance proceeds received during 2017 partially offset by an increase in mortgage banking, net. During 2017, Trustmark received $4.9 million in non-taxable proceeds related to life insurance acquired in a previous acquisition and $4.4 million of non-taxable proceeds related to bank-owned life insurance. Noninterest income for the General Banking Segment represented 21.2% of total revenue for 2019, 21.5% for 2018 and 22.4% for 2017. Noninterest income for the General Banking Segment includes service charges on deposit accounts; bank card and other fees; mortgage banking, net; other income, net and securities gains (losses), net. For more information on these noninterest income items, please see the analysis included in the section captioned “Noninterest Income.”

Noninterest expense for the General Banking Segment increased $15.1 million, or 4.2%, during 2018 compared to a decrease of $15.4 million, or 4.2%, during 2018. The increase in noninterest expense for 2019 was principally due to increases in salaries and employee

benefits, principally as a result of increases in commission expense related to improvements in mortgage originations, salaries expense primarily due to general merit increases, insurance expense related to Trustmark’s health plans and stock compensation; increases in services and fees, primarily related to increases in data processing charges related to software, professional services and fees and advertising expense; increases in other real estate expense, net, primarily due to an increase in write-downs of other real estate; and the increase in charitable contributions related to the Mississippi Children’s Promise Act. The decrease in noninterest expense for 2018 was principally due to non-routine transaction expenses related to the termination of the defined benefit pension plan and the Reliance merger incurred during 2017, partially offset by increases in salaries and employee benefits, primarily as a result of general merit increases and higher mortgage origination commission expense, and services and fees, primarily related to data processing software expense. For more information on these noninterest expense items, please see the analysis included in the section captioned “Noninterest Expense.”

~~Wealth Management~~

During 2019, net income for the Wealth Management Segment increased $2.5 million, or 67.3%, compared to an increase of $567 thousand, or 18.3%, during 2018. Net interest income for the Wealth Management Segment increased $53 thousand, or 1.5%, during 2019 compared to a decrease of $1.2 million, or 24.5%, during 2018. Noninterest income for the Wealth Management Segment, which includes income related to investment management, trust and brokerage services, increased $441 thousand, or 1.4%, during 2019. The slight increase in noninterest income for the Wealth Management Segment during 2019 was primarily attributable to an increase in trust management fees. Noninterest income for the Wealth Management Segment was unchanged during 2018 as declines in trust management fees were offset by increases in fees from investment services. Noninterest expense decreased $2.8 million, or 9.6%, during 2019 compared to a decrease of $819 thousand, or 2.7%, during 2018. The decrease in noninterest expense for the Wealth Management Segment during 2019 was principally due to a decrease in professional service fees as well as insurance settlement proceeds received during 2019 related to a legal case settled in 2018. The decrease in noninterest expense for the Wealth Management Segment during 2018 was principally due to a decrease in other miscellaneous expense partially offset by increases in data processing expense related to software and salaries and employee benefits resulting from improvements in retail brokerage activity.

~~At December 31, 2019 and 2018, Trustmark held assets under management and administration of $11.782 billion and $10.592 billion and brokerage assets of $1.993 billion and $1.723 billion, respectively.~~

~~Insurance~~

Net income for the Insurance Segment during 2019 increased $583 thousand, or 7.9%, compared to an increase of $1.7 million, or 29.8%, during 2018. Noninterest income for the Insurance Segment, which predominately consists of insurance commissions, increased $1.9 million, or 4.8%, during 2019, compared to an increase of $2.3 million, or 6.0%, during 2018. The increase in noninterest income for the Insurance Segment during 2019 was primarily due to new insurance commission volume across all lines of business. The increase in noninterest income for the Insurance Segment during 2018 was primarily due to new insurance commission volume primarily in property and casualty coverage.

Noninterest expense for the Insurance Segment increased $1.3 million, or 4.2%, during 2019 and $1.5 million, or 5.0%, during 2018. Increases in noninterest expense for the Insurance Segment during 2019 and 2018 were primarily due to higher commission expense due to improvements in business volumes and higher salaries expense resulting from modest general merit increases.

Trustmark performed an annual impairment test of the book value of goodwill held in the Insurance Segment as of October 1, 2019, 2018, and 2017. Based on this analysis, Trustmark concluded that no impairment charge was required. A renewed period of falling prices and suppressed demand for the products of the Insurance Segment could result in impairment of goodwill in the future. FBBI’s ability to maintain the current income trend is dependent on the success of the subsidiary’s continued initiatives to attract new business through cross referrals between practice units and bank relationships and seeking new business in other markets.

~~Income Taxes~~

For the year ended December 31, 2019, Trustmark’s combined effective tax rate was 13.4% compared to 13.0% in 2018 and 31.6% in 2017. During the fourth quarter of 2017, Trustmark incurred non-routine income tax expenses of $17.0 million related to the re-measurement of Trustmark’s net deferred tax assets due to the enactment of the Tax Reform Act and the elimination of a deferred tax valuation allowance related to a prior merger. Excluding the effect of these non-routine income tax expenses, Trustmark’s combined effective tax rate for 2017 was 20.6%. The decrease in the effective tax rate for 2018 compared to 2017, was primarily due to the lower statutory corporate tax rate as a result of the enactment of the Tax Reform Act. Trustmark’s effective tax rate continues to be less than the statutory rate primarily due to various tax-exempt income items and its utilization of income tax credit programs. Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis (~~i.e., NMTC, low income housing tax credits and historical tax credits). The income tax credits related to these partnerships are utilized as specifically allowed by income~~

tax law and are recorded as a reduction in income tax expense. The Tax Reform Act did not impact the availability or accounting for these income tax credits in general; however, as a result of the lower combined effective tax rate, Trustmark is limited in its ability to invest in any new tax credits.

~~Financial Condition~~

Earning assets serve as the primary revenue streams for Trustmark and are comprised of securities, loans, federal funds sold, securities purchased under reverse repurchase agreements and other earning assets. Average earning assets totaled $12.131 billion, or 89.9% of total average assets, at December 31, 2019, compared with $12.194 billion, or 90.5% of total average assets, at December 31, 2018, a decrease of $62.9 million, or 0.5%.

~~Securities~~

When compared with December 31, 2018, total investment securities decreased by $381.0 million, or 14.0%, during 2019. This decrease resulted primarily from calls, maturities and pay-downs of the underlying loans of GSE guaranteed securities, partially offset by purchases of available for sale securities as well as a net increase in the fair market value of the securities available for sale. Trustmark sold no securities during 2019 or 2018.

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale as securities held to maturity to mitigate the potential adverse impact of a rising interest rate environment on the fair value of the available for sale securities and the related impact on tangible common equity. The resulting net unrealized holding loss is being amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. At December 31, 2019, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive loss (AOCL) in the accompanying consolidated balance sheets totaled $12.1 million ($9.1 million net of tax) compared to $15.7 million ($11.8 million net of tax) at December 31, 2018.

Available for sale securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in AOCL, a separate component of shareholders’ equity. At December 31, 2019, available for sale securities totaled $1.602 billion, which represented 68.5% of the securities portfolio, compared to $1.812 billion, or 66.6%, at December 31, 2018. At December 31, 2019, unrealized gains, net on available for sale securities totaled $1.4 million compared to unrealized losses, net of $42.7 million at December 31, 2018. At December 31, 2019, available for sale securities consisted of obligations of states and political subdivisions, GSE guaranteed mortgage-related securities and direct obligations of government agencies and GSEs.

Held to maturity securities are carried at amortized cost and represent those securities that Trustmark both intends and has the ability to hold to maturity. At December 31, 2019, held to maturity securities totaled $738.1 million and represented 31.5% of the total securities portfolio, compared with $909.6 million, or 33.4%, at December 31, 2018.

~~The table below indicates the amortized cost of securities available for sale and held to maturity by type at December 31, 2019, 2018 and 2017 ($ in thousands):~~

December 31,

2019

2018

2017

Securities available for sale

U.S. Government agency obligations

$
22,965

$
31,235

$
45,763

Obligations of states and political subdivisions

24,952

50,503

78,433

Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

69,196

69,648

66,634

Issued by FNMA and FHLMC

714,350

685,520

824,872

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

656,162

830,129

1,028,176

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

113,359

187,494

218,252

Total securities available for sale

$
1,600,984

$
1,854,529

$
2,262,130

Securities held to maturity

U.S. Government agency obligations

$
3,781

$
3,736

$
3,692

Obligations of states and political subdivisions

31,781

35,783

46,039

Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

10,820

12,090

13,539

Issued by FNMA and FHLMC

96,631

115,133

133,975

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

485,324

578,827

678,926

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

109,762

164,074

180,315

Total securities held to maturity

$
738,099

$
909,643

$
1,056,486

The following table details the maturities of securities available for sale and held to maturity using the amortized cost at December 31, 2019, and the weighted-average yield for each range of maturities (tax equivalent basis) ($ in thousands):

Maturing

Within
One Year

Yield

After One,
But Within
Five Years

Yield

After Five,
But Within
Ten Years

Yield

After
Ten Years

Yield

Total

Securities available for sale

U.S. Government agency obligations

$
251

3.85
%

$
643

4.33
%

$
4,715

4.01
%

$
17,356

3.31
%

$
22,965

Obligations of states and political
   subdivisions

19,693

3.83
%

1,064

2.57
%

273

2.87
%

3,922

4.52
%

24,952

Mortgage-backed securities

Residential mortgage pass-through
   securities

Guaranteed by GNMA

8

—

1,380

2.18
%

3,399

2.13
%

64,409

2.76
%

69,196

Issued by FNMA and FHLMC

—

—

2,635

3.29
%

330,414

2.04
%

381,301

2.24
%

714,350

Other residential mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC, or GNMA

88

2.50
%

4,867

2.35
%

24,088

2.44
%

627,119

2.41
%

656,162

Commercial mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC, or GNMA

—

—

105,249

2.34
%

1,396

3.41
%

6,714

2.77
%

113,359

Total securities available for sale

$
20,040

3.82
%

$
115,838

2.37
%

$
364,285

2.10
%

$
1,100,821

2.39
%

$
1,600,984

Securities held to maturity

U.S. Government agency obligations

$
—

—

$
3,781

2.52
%

$
—

—

$
—

—

$
3,781

Obligations of states and political
   subdivisions

5,071

4.81
%

26,710

4.08
%

—

—

—

—

31,781

Mortgage-backed securities

Residential mortgage pass-through
   securities

Guaranteed by GNMA

—

—

—

—

—

—

10,820

3.14
%

10,820

Issued by FNMA and FHLMC

—

—

—

—

27,060

1.98
%

69,571

2.40
%

96,631

Other residential mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC, or GNMA

—

—

—

—

—

—

485,324

2.01
%

485,324

Commercial mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC, or GNMA

—

—

86,123

2.17
%

—

—

23,639

2.43
%

109,762

Total securities held to maturity

$
5,071

4.81
%

$
116,614

2.62
%

$
27,060

1.98
%

$
589,354

2.09
%

$
738,099

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of approximately 97.5% of the portfolio in GSE-backed obligations and other Aaa-rated securities as determined by Moody’s Investors Services (Moody’s). None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of stock ownership in the FHLB of Dallas, FHLB of Atlanta and Federal Reserve Bank of Atlanta, Trustmark does not hold any other equity investment in a GSE.

As of December 31, 2019, Trustmark did not hold securities of any one issuer with a carrying value exceeding ten percent of total shareholders’ equity, other than certain GSEs which are exempt from inclusion. Management continues to closely monitor the credit quality as well as the ratings of the debt and mortgage-backed securities issued by the GSEs and held in Trustmark’s securities portfolio.

~~The following table presents Trustmark’s securities portfolio by amortized cost and estimated fair value and by credit rating, as determined by Moody’s, at December 31, 2019 ($ in thousands):~~

Amortized Cost

Estimated Fair Value

Amount

%

Amount

%

Securities Available for Sale

Aaa

$
1,576,031

98.4
%

$
1,576,939

98.4
%
Aa1 to Aa3

16,630

1.0
%

16,690

1.0
%
A1 to A3

200

—

200

—

Baa1 to Baa3

1,082

0.1
%

1,105

0.1
%
Not Rated (1)

7,041

0.5
%

7,470

0.5
%
Total securities available for sale

$
1,600,984

100.0
%

$
1,602,404

100.0
%

Securities Held to Maturity

Aaa

$
706,318

95.7
%

$
714,041

95.7
%
Aa1 to Aa3

26,229

3.6
%

26,456

3.5
%
Not Rated (1)

5,552

0.7
%

5,705

0.8
%
Total securities held to maturity

$
738,099

100.0
%

$
746,202

100.0
%

~~(1)~~

~~Not rated issues primarily consist of Mississippi municipal general obligations.~~

The table above presenting the credit rating of Trustmark’s securities is formatted to show the securities according to the credit rating category, and not by category of the underlying security. At December 31, 2019, approximately 98.4% of the available for sale securities, measured at the estimated fair value, and 95.7% of the held to maturity securities, measured at amortized cost, were rated Aaa.

~~LHFS~~

At December 31, 2019, LHFS totaled $226.3 million, consisting of $169.3 million of residential real estate mortgage loans in the process of being sold to third parties and $57.1 million of Government National Mortgage Association (GNMA) optional repurchase loans. At December 31, 2018, LHFS totaled $153.8 million, consisting of $92.2 million of residential real estate mortgage loans in the process of being sold to third parties and $61.6 million of GNMA optional repurchase loans. Please refer to the nonperforming assets table that follows for information on GNMA loans eligible for repurchase which are past due 90 days or more.

~~Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during 2019 or 2018.~~

For additional information regarding the GNMA optional repurchase loans, please see the section captioned “Past Due LHFS” included in Note 5 – LHFI and Allowance for Loan Losses, LHFI of Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~LHFI~~

The table below provides the carrying value of the LHFI portfolio by loan type for each year of the five-year period ended
December 31, 2019 ($ in thousands):

December 31,

2019

2018

2017

2016

2015

Amount

%

Amount

%

Amount

%

Amount

%

Amount

%

Loans secured by real estate:

Construction, land development
   and other land

$
1,162,791

12.4
%

$
1,056,601

12.0
%

$
987,624

11.5
%

$
831,437

10.6
%

$
824,723

11.6
%
Secured by 1-4 family
   residential properties

1,855,913

19.9
%

1,825,492

20.7
%

1,675,311

19.6
%

1,660,043

21.1
%

1,649,501

23.3
%
Secured by nonfarm,
   nonresidential properties

2,475,245

26.5
%

2,220,914

25.1
%

2,193,823

25.6
%

2,034,176

25.9
%

1,736,476

24.5
%
Other real estate secured

724,480

7.8
%

543,820

6.1
%

517,956

6.1
%

318,148

4.0
%

211,228

3.0
%
Commercial and industrial loans

1,477,896

15.8
%

1,538,715

17.4
%

1,570,345

18.3
%

1,528,434

19.5
%

1,343,211

18.9
%
Consumer loans

175,738

1.9
%

182,448

2.1
%

171,918

2.0
%

170,562

2.2
%

169,135

2.4
%
State and other political subdivision loans

967,944

10.4
%

973,818

11.0
%

952,483

11.1
%

917,515

11.7
%

734,615

10.4
%
Other loans

495,621

5.3
%

494,060

5.6
%

500,507

5.8
%

390,898

5.0
%

422,496

5.9
%
LHFI

$
9,335,628

100.0
%

$
8,835,868

100.0
%

$
8,569,967

100.0
%

$
7,851,213

100.0
%

$
7,091,385

100.0
%

LHFI at December 31, 2019 increased $499.8 million, or 5.7%, compared to December 31, 2018. The increase in LHFI during 2019 was principally due to net increases in loans secured by real estate in all five market regions partially offset by declines in commercial and industrial loans in Trustmark’s Mississippi and Tennessee market regions.

During 2019, LHFI secured by real estate increased $571.6 million, or 10.1%, due to net growth in loans secured by nonfarm, nonresidential properties, other real estate secured loans, construction, land development and other land loans and loans secured by 1-4 family residential properties. LHFI secured by nonfarm, nonresidential properties (NFNR LHFI) increased $254.3 million, or 11.5%, during 2019, principally due to movement from the other construction loans category. Excluding other construction loan reclassifications, the NFNR LHFI portfolio declined $184.1 million, or 8.3%, during 2019. The decrease in the NFNR LHFI portfolio, excluding the other construction reclassifications, was primarily attributable to declines in nonowner-occupied loans in Trustmark’s Mississippi and Alabama market regions as well as declines in owner-occupied loans in all five market regions. Other real estate secured LHFI increased $180.7 million, or 33.2%, during 2019, primarily due to multi-family residential loans in Trustmark’s Alabama, Texas, Mississippi and Florida market regions that were moved from the other construction loan category. Excluding the other construction loan reclassifications, other real estate secured LHFI decreased $152.1 million, or 28.0%, during 2019 principally due to declines in multi-family residential properties in all five market regions. LHFI secured by construction, land development and other land increased $106.2 million, or 10.1%, during 2019, principally due to new loan growth in the other construction category, partially offset by other construction loans that were moved to other loan categories upon completion of the related construction project. During 2019, $773.8 million loans were moved from other construction to other loan categories, including $334.2 million in multi-family residential loans, $353.4 million in nonowner-occupied loans and $86.2 million in owner-occupied loans. Excluding all reclassifications between loan categories, growth in other construction loans across all five market regions totaled $833.9 million for 2019. LHFI secured by 1-4 family residential properties increased $30.4 million, or 1.7%, during 2019 primarily due to growth in mortgage loans in the Mississippi and Alabama market regions.

The commercial and industrial loan portfolio decreased $60.8 million, or 4.0%, during 2019, due to declines in the Mississippi and Tennessee market regions, partially offset by growth in the Alabama market region. Trustmark’s exposure to the energy sector is primarily included in the commercial and industrial loan portfolio in Trustmark’s Mississippi and Texas market regions. At December 31, 2019 and 2018, energy-related LHFI had outstanding balances of approximately $122.9 million and $172.1 million, respectively, which represented approximately 1.3% of Trustmark’s total LHFI portfolio at December 31, 2019 compared to approximately 2.0% of the total LHFI portfolio at December 31, 2018. Trustmark has no loan exposure where the source of repayment, or the underlying security of such exposure, is tied to the realization of value from energy reserves. Should oil prices fall below current levels for a prolonged period of time, there is potential for downgrades to occur. Management will continue to monitor this exposure.

December 31,

2019

2018

Home equity loans

$
52,348

$
54,778

Home equity lines of credit

388,217

393,134

Percentage of loans and lines for which Trustmark holds first lien

59.4
%

59.8
%
Percentage of loans and lines for which Trustmark does not hold first lien

40.6
%

40.2
%

Due to the increased risk associated with second liens, loan terms and underwriting guidelines differ from those used for products secured by first liens. Loan amounts and loan-to-value ratios are limited and are lower for second liens than first liens. Also, interest rates and maximum amortization periods are adjusted accordingly. In addition, regardless of lien position, the passing credit score for approval of all home equity lines of credit is higher than that of term loans. The allowance for loan losses, LHFI is also reflective of the increased risk related to second liens through application of a greater loss factor to this portion of the portfolio.

~~The following table presents the LHFI composition by region at December 31, 2019 and reflects a diversified mix of loans by region ($ in thousands):~~

December 31, 2019

Total

Alabama

Florida

Mississippi

Tennessee

Texas

LHFI Composition by Region

Loans secured by real estate:

Construction, land development and
   other land

$
1,162,791

$
396,640

$
87,073

$
360,458

$
22,998

$
295,622

Secured by 1-4 family residential
   properties

1,855,913

126,541

39,111

1,594,235

82,644

13,382

Secured by nonfarm, nonresidential
   properties

2,475,245

622,714

255,996

923,335

165,393

507,807

Other real estate secured

724,480

190,099

26,011

283,201

9,627

215,542

Commercial and industrial loans

1,477,896

227,792

22,479

721,854

315,794

189,977

Consumer loans

175,738

24,124

5,002

124,395

19,777

2,440

State and other political subdivision loans

967,944

106,218

38,763

613,476

27,447

182,040

Other loans

495,621

79,404

16,452

301,144

67,526

31,095

LHFI

$
9,335,628

$
1,773,532

$
490,887

$
4,922,098

$
711,206

$
1,437,905

Construction, Land Development and Other Land Loans by Region

Lots

$
73,058

$
16,166

$
22,625

$
25,592

$
2,032

$
6,643

Development

60,881

13,327

8,365

28,390

4,714

6,085

Unimproved land

98,550

22,947

17,050

28,202

11,987

18,364

1-4 family construction

252,073

117,405

21,723

84,277

3,437

25,231

Other construction

678,229

226,795

17,310

193,997

828

239,299

Construction, land development and
   other land loans

$
1,162,791

$
396,640

$
87,073

$
360,458

$
22,998

$
295,622

Loans Secured by Nonfarm, Nonresidential Properties by Region

Nonowner-occupied:

Retail

$
426,995

$
165,213

$
41,542

$
117,382

$
27,709

$
75,149

Office

232,572

46,550

27,788

60,682

11,816

85,736

Hotel/motel

315,270

114,786

96,401

52,375

40,708

11,000

Mini-storage

110,097

12,301

3,832

47,561

579

45,824

Industrial

169,165

57,741

10,833

28,790

2,322

69,479

Health care

37,366

11,065

3,462

19,055

—

3,784

Convenience stores

24,283

3,137

—

11,680

639

8,827

Nursing homes/senior living

38,370

18,792

—

2,366

—

17,212

Other

63,485

4,219

6,875

11,965

5,804

34,622

Total nonowner-occupied loans

1,417,603

433,804

190,733

351,856

89,577

351,633

Owner-occupied:

Office

155,787

35,147

27,512

58,023

7,389

27,716

Churches

99,737

22,690

6,350

42,265

13,794

14,638

Industrial warehouses

139,685

11,778

3,372

63,204

16,289

45,042

Health care

132,838

18,305

6,175

92,828

2,542

12,988

Convenience stores

106,175

13,277

7,044

63,969

667

21,218

Retail

69,311

15,610

7,377

27,333

2,788

16,203

Restaurants

56,369

3,730

1,857

32,722

16,542

1,518

Auto dealerships

30,123

8,257

300

13,288

8,278

—

Nursing homes/senior living

179,737

55,174

—

118,707

5,856

—

Other

87,880

4,942

5,276

59,140

1,671

16,851

Total owner-occupied loans

1,057,642

188,910

65,263

571,479

75,816

156,174

Loans secured by nonfarm,
   nonresidential properties

$
2,475,245

$
622,714

$
255,996

$
923,335

$
165,393

$
507,807

Due to the short-term nature of most commercial real estate lending and the practice of annual renewal of commercial lines of credit, approximately one-third of Trustmark’s portfolio matures in less than one year. Such a short-term maturity profile is not unusual for a commercial bank and provides Trustmark the opportunity to obtain updated financial information from its borrowers and to actively monitor its borrowers’ creditworthiness. This maturity profile is well matched with many of Trustmark’s sources of funding, which are also short-term in nature.

~~The following table provides information regarding Trustmark’s LHFI maturities by loan type at December 31, 2019 ($ in thousands):~~

Maturing

One Year

Within

Through

After

One Year

Five

Five

or Less

Years

Years

Total

Loans secured by real estate:

Construction, land development and other land

$
912,570

$
201,976

$
48,245

$
1,162,791

Secured by 1-4 family residential properties

499,633

241,830

1,114,450

1,855,913

Other real estate secured

1,713,273

1,152,947

333,505

3,199,725

Commercial and industrial loans

811,343

579,060

87,493

1,477,896

Consumer loans

50,175

121,041

4,522

175,738

Other loans

428,455

398,748

636,362

1,463,565

LHFI

$
4,415,449

$
2,695,602

$
2,224,577

$
9,335,628

~~The following table provides information regarding Trustmark’s LHFI maturities by interest rate sensitivity at December 31, 2019 ($ in thousands):~~

Maturing

One Year

Within

Through

After

One Year

Five

Five

or Less

Years

Years

Total

Loan Type

Predetermined interest rates

$
858,154

$
2,141,050

$
1,851,038

$
4,850,242

Floating interest rates:

Loans which are at contractual floor

200,087

41,663

20,813

262,563

Loans which are free to float

3,357,208

512,889

352,726

4,222,823

Total floating interest rates

3,557,295

554,552

373,539

4,485,386

LHFI

$
4,415,449

$
2,695,602

$
2,224,577

$
9,335,628

Trustmark’s variable rate LHFI are based primarily on various prime and LIBOR interest rate bases. The following tables provide information regarding the interest rate terms of Trustmark’s LHFI as of December 31, 2019 and 2018 ($ in thousands):

December 31, 2019

Fixed

Variable

Total

Loans secured by real estate:

Construction, land development and other land

$
201,055

$
961,736

$
1,162,791

Secured by 1- 4 family residential properties

1,004,079

851,834

1,855,913

Secured by nonfarm, nonresidential properties

1,430,132

1,045,113

2,475,245

Other real estate secured

189,023

535,457

724,480

Commercial and industrial loans

636,518

841,378

1,477,896

Consumer loans

152,970

22,768

175,738

State and other political subdivision loans

925,990

41,954

967,944

Other loans

310,475

185,146

495,621

LHFI

$
4,850,242

$
4,485,386

$
9,335,628

December 31, 2018

Fixed

Variable

Total

Loans secured by real estate:

Construction, land development and other land

$
306,590

$
750,011

$
1,056,601

Secured by 1- 4 family residential properties

1,051,290

774,202

1,825,492

Secured by nonfarm, nonresidential properties

1,490,035

730,879

2,220,914

Other real estate secured

197,549

346,271

543,820

Commercial and industrial loans

821,343

717,372

1,538,715

Consumer loans

162,940

19,508

182,448

State and other political subdivision loans

907,685

66,133

973,818

Other loans

265,277

228,783

494,060

LHFI

$
5,202,709

$
3,633,159

$
8,835,868

~~Allowance for Loan Losses, LHFI~~

Trustmark’s allowance for loan loss methodology is based on guidance provided in SEC Staff Accounting Bulletin (SAB) No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues,” as well as other regulatory guidance. Trustmark’s allowance has been developed using different factors to estimate losses based upon specific evaluation of identified individual LHFI considered impaired, estimated identified losses on various pools of LHFI and/or groups of risk rated LHFI with common risk characteristics and other external and internal factors of estimated probable losses based on other facts and circumstances. The level of Trustmark’s allowance reflects Management’s continuing evaluation of specific credit risks, loan loss experience, current loan portfolio growth, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. For a complete description of Trustmark’s allowance for loan loss methodology and the quantitative and qualitative factors included in the valuation allowance, please see Note 5 – LHFI and Allowance for Loan Losses, LHFI included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~The table below illustrates the changes in Trustmark’s allowance for loan losses, LHFI as well as Trustmark’s loan loss experience for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

2016

2015

Balance at beginning of period

$
79,290

$
76,733

$
71,265

$
67,619

$
69,616

Transfers (1)

—

1,554

—

—

—

LHFI charged off:

Construction, land development and other land loans

(40
)

(123
)

(79
)

(311
)

(2,435
)
Loans secured by 1-4 family residential properties

(531
)

(1,629
)

(950
)

(1,319
)

(2,473
)
Loans secured by nonfarm, nonresidential properties

(322
)

(1,184
)

(4,231
)

(3,067
)

(1,439
)
Other loans secured by real estate

—

—

(5
)

(27
)

(24
)
Commercial and industrial loans

(5,344
)

(18,823
)

(8,286
)

(6,602
)

(8,081
)
Consumer loans

(2,278
)

(2,089
)

(2,546
)

(1,864
)

(2,171
)
State and other political subdivision loans

—

—

—

—

—

Other loans

(5,966
)

(5,641
)

(5,050
)

(5,740
)

(5,846
)
Total charge-offs

(14,481
)

(29,489
)

(21,147
)

(18,930
)

(22,469
)
Recoveries on LHFI previously charged off:

Construction, land development and other land loans

894

1,124

1,428

1,380

1,773

Loans secured by 1-4 family residential properties

666

646

1,833

1,122

920

Loans secured by nonfarm, nonresidential properties

472

133

396

976

605

Other loans secured by real estate

29

23

69

7

136

Commercial and industrial loans

1,257

5,410

2,578

732

1,761

Consumer loans

1,829

2,019

1,938

4,007

3,289

State and other political subdivision loans

—

—

—

—

—

Other loans

3,524

3,144

3,279

3,395

3,613

Total recoveries

8,671

12,499

11,521

11,619

12,097

Net (charge-offs) recoveries

(5,810
)

(16,990
)

(9,626
)

(7,311
)

(10,372
)
Provision for loan losses, LHFI

10,797

17,993

15,094

10,957

8,375

Balance at end of period

$
84,277

$
79,290

$
76,733

$
71,265

$
67,619

Percentage of net charge-offs (recoveries) during
period to average loans (LHFS and LHFI)
outstanding during the period

0.06
%

0.19
%

0.11
%

0.10
%

0.15
%

~~(1)~~

The allowance for loan losses balance related to the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions, which were reclassified from acquired impaired loans to LHFI during 2018.

The allowance for loan loss, LHFI increased $5.0 million, or 6.3%, during 2019 principally due to increases in reserves required related to growth in the LHFI portfolio and changes in qualitative reserve factors. Total allowance coverage of nonperforming LHFI, excluding specifically reviewed impaired LHFI, increased to 410.52% at December 31, 2019, compared to 350.77% at December 31, 2018 principally due to the increase in the allowance for loan losses, LHFI, excluding specific reserves for impaired LHFI. Allocation of Trustmark’s allowance for loan losses, LHFI, represented 0.98% of commercial LHFI and 0.61% of consumer and home mortgage LHFI, resulting in an allowance to total LHFI of 0.90% as of December 31, 2019. This compares with an allowance to total LHFI of 0.90% at December 31, 2018, which was allocated to commercial LHFI at 0.99% and to consumer and home mortgage LHFI at 0.57%.

~~The following tables present changes in the allowance for loan losses, LHFI by geographic market region for the periods presented ($ in thousands):~~

Year Ended December 31, 2019

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
79,290

$
11,175

$
3,242

$
40,592

$
8,422

$
15,859

LHFI charged-off

(14,481
)

(1,327
)

(293
)

(10,335
)

(1,371
)

(1,155
)
Recoveries

8,671

573

1,143

5,897

663

395

Net (charge-offs) recoveries

(5,810
)

(754
)

850

(4,438
)

(708
)

(760
)
Provision for loan losses, LHFI

10,797

2,430

(809
)

4,827

4,411

(62
)
Balance at end of period

$
84,277

$
12,851

$
3,283

$
40,981

$
12,125

$
15,037

Year Ended December 31, 2018

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
76,733

$
10,473

$
2,819

$
44,388

$
5,427

$
13,626

Transfers (1)

1,554

—

782

772

—

—

LHFI charged-off

(29,489
)

(1,025
)

(184
)

(13,496
)

(8,815
)

(5,969
)
Recoveries

12,499

428

2,090

8,720

857

404

Net (charge-offs) recoveries

(16,990
)

(597
)

1,906

(4,776
)

(7,958
)

(5,565
)
Provision for loan losses, LHFI

17,993

1,299

(2,265
)

208

10,953

7,798

Balance at end of period

$
79,290

$
11,175

$
3,242

$
40,592

$
8,422

$
15,859

Year Ended December 31, 2017

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
71,265

$
7,188

$
2,900

$
43,010

$
5,801

$
12,366

LHFI charged-off

(21,147
)

(986
)

(339
)

(13,910
)

(1,157
)

(4,755
)
Recoveries

11,521

439

3,209

6,555

764

554

Net (charge-offs) recoveries

(9,626
)

(547
)

2,870

(7,355
)

(393
)

(4,201
)
Provision for loan losses, LHFI

15,094

3,832

(2,951
)

8,733

19

5,461

Balance at end of period

$
76,733

$
10,473

$
2,819

$
44,388

$
5,427

$
13,626

~~(1)~~

Charge-offs exceeded recoveries for 2019 resulting in a net charge-off of $5.8 million, or 0.06% of average loans (LHFS and LHFI), compared to a net charge-off of $17.0 million, or 0.19% of average loans (LHFS and LHFI), in 2018, and a net charge-off of $9.6 million, or 0.11% of average loans (LHFS and LHFI), in 2017. The decrease in net charge-offs during 2019 was principally due to declines in charge-offs in the Tennessee, Texas and Mississippi market regions primarily due to three large problem commercial credits in these market regions that were charged off during 2018.

The provision for loan losses, LHFI represents the change in the estimated loan losses determined utilizing Trustmark’s allowance for loan loss methodology net of charge-offs and recoveries of LHFI charged against net income. The provision for loan losses, LHFI, for 2019 totaled 0.12% of average loans (LHFS and LHFI), compared to 0.20% of average loans (LHFS and LHFI) in 2018 and 0.18% of average loans (LHFS and LHFI) in 2017. The decrease in the provision for loan losses, LHFI for 2019 when compared to 2018 was primarily due to decreases in net charge-offs and specific reserves for impaired LHFI, partially offset by increases in reserves required as a result of changes in qualitative reserve factors and growth of the LHFI portfolio.

~~Nonperforming Assets, Excluding Acquired Loans~~

The table below provides the components of the nonperforming assets, excluding acquired loans, by geographic market region for each year in the five-year period ended December 31, 2019 ($ in thousands):

December 31,

2019

2018

2017

2016

2015

Nonaccrual LHFI

Alabama

$
1,870

$
3,361

$
3,083

$
665

$
1,776

Florida

267

1,175

3,034

3,644

5,180

Mississippi

41,493

44,331

49,129

37,771

40,754

Tennessee

8,980

8,696

4,436

6,213

5,106

Texas

616

4,061

7,893

941

2,496

Total nonaccrual LHFI

53,226

61,624

67,575

49,234

55,312

Other real estate

Alabama

8,133

6,873

11,714

15,989

21,578

Florida

5,877

8,771

13,937

22,582

29,579

Mississippi

14,919

17,255

14,260

15,646

14,312

Tennessee

319

1,025

2,535

6,183

9,974

Texas

—

744

782

1,651

1,734

Total other real estate

29,248

34,668

43,228

62,051

77,177

Total nonperforming assets

$
82,474

$
96,292

$
110,803

$
111,285

$
132,489

Nonperforming assets/total loans (LHFS and LHFI)
and other real estate

0.86
%

1.07
%

1.26
%

1.38
%

1.81
%

Loans Past Due 90 days or more

LHFI

$
642

$
856

$
2,171

$
1,832

$
2,300

LHFS - Guaranteed GNMA services loans (1)

$
41,648

$
37,384

$
35,544

$
28,345

$
21,812

~~(1)~~

~~No obligation to repurchase.~~

See the previous discussion of LHFS for more information on Trustmark’s serviced GNMA loans eligible for repurchase and the impact of Trustmark’s repurchases of delinquent mortgage loans under the GNMA optional repurchase program.

~~Nonaccrual LHFI~~

At December 31, 2019, nonaccrual LHFI totaled $53.2 million, or 0.56% of total LHFS and LHFI, reflecting a decrease of $8.4 million, or 0.09% of total LHFS and LHFI, relative to December 31, 2018. The decrease in nonaccrual LHFI was principally due to a reduction and charge-off of one large commercial nonaccrual credit in the Mississippi market region and one large commercial nonaccrual credit in the Texas market region, for which reserves were previously established, as well as foreclosure of one large nonaccrual healthcare credit and reduction of one large commercial nonaccrual credit in the Mississippi market, which were largely offset by a large commercial nonaccrual credit in the Mississippi market region that was placed on nonaccrual during 2019. As of December 31, 2019, nonaccrual energy-related LHFI totaled $10.6 million and represented 8.6% of Trustmark’s total energy-related portfolio, compared to $12.0 million, or 7.0% of Trustmark’s total energy-related portfolio at December 31, 2018. For additional information regarding nonaccrual LHFI, see the section captioned “Nonaccrual and Past Due LHFI” in Note 5 – LHFI and Allowance for Loan Losses, LHFI included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~The following table illustrates nonaccrual LHFI by loan type for each year in the five-year period ended December 31, 2019 ($ in thousands):~~

December 31,

2019

2018

2017

2016

2015

Loans secured by real estate:

Construction, land development and other land

$
897

$
2,218

$
2,105

$
3,323

$
6,123

Secured by 1-4 family residential properties

16,810

14,718

19,022

20,329

23,079

Secured by nonfarm, nonresidential properties

7,700

9,621

12,608

8,482

17,800

Other real estate secured

1,032

927

212

402

145

Commercial and industrial loans

21,775

23,938

33,338

15,824

7,622

Consumer loans

108

205

135

300

31

State and other political subdivision loans

4,079

8,595

—

—

—

Other loans

825

1,402

155

574

512

Total nonaccrual LHFI

$
53,226

$
61,624

$
67,575

$
49,234

$
55,312

~~Other Real Estate~~

Other real estate at December 31, 2019 decreased $5.4 million, or 15.6%, when compared with December 31, 2018 as a result of properties sold and write-downs on foreclosed properties across all five market regions, partially offset by new properties foreclosed in Trustmark’s Mississippi, Alabama, and Tennessee market regions.

~~The following tables illustrate changes in other real estate by geographic market region for the periods presented ($ in thousands):~~

Year Ended December 31, 2019

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
34,668

$
6,873

$
8,771

$
17,255

$
1,025

$
744

Additions

8,598

2,908

—

5,575

115

—

Disposals

(11,474
)

(1,198
)

(2,783
)

(5,967
)

(800
)

(726
)
Write-downs

(2,544
)

(450
)

(111
)

(1,944
)

(21
)

(18
)
Balance at end of period

$
29,248

$
8,133

$
5,877

$
14,919

$
319

$
—

Year Ended December 31, 2018

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
43,228

$
11,714

$
13,937

$
14,260

$
2,535

$
782

Additions

12,115

1,563

2,637

7,533

382

—

Disposals

(19,802
)

(5,217
)

(7,747
)

(5,035
)

(1,803
)

—

Write-downs

(873
)

(133
)

(56
)

(557
)

(89
)

(38
)
Adjustments

—

(1,054
)

—

1,054

—

—

Balance at end of period

$
34,668

$
6,873

$
8,771

$
17,255

$
1,025

$
744

Year Ended December 31, 2017

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
62,051

$
15,989

$
22,582

$
15,646

$
6,183

$
1,651

Additions

9,235

1,226

504

5,970

753

782

Disposals

(24,762
)

(4,562
)

(7,993
)

(6,183
)

(4,373
)

(1,651
)
Write-downs

(3,296
)

(939
)

(1,156
)

(1,173
)

(28
)

—

Balance at end of period

$
43,228

$
11,714

$
13,937

$
14,260

$
2,535

$
782

Write-downs of other real estate increased $1.7 million during 2019 compared to a decrease of $2.4 million, or 73.5%, during 2018. The increase in write-downs of other real estate during 2019 compared to 2018 was principally due to changes in reserves for write-downs of other real estate during the respective periods.

~~The following table illustrates other real estate by type of property for each year in the five-year period ended December 31, 2019 ($ in thousands):~~

December 31,

2019

2018

2017

2016

2015

Construction, land development and other land properties

$
11,482

$
16,206

$
27,491

$
36,871

$
47,550

1-4 family residential properties

3,453

4,983

5,081

7,926

10,732

Nonfarm, nonresidential properties

14,313

13,296

10,468

16,817

16,717

Other real estate properties

—

183

188

437

2,178

Total other real estate

$
29,248

$
34,668

$
43,228

$
62,051

$
77,177

~~Acquired Loans~~

~~Trustmark’s loss share agreement with the FDIC covering the acquired covered loans secured by 1-4 family residential properties will expire in 2021.~~

~~The table below provides the carrying value of the acquired loan portfolio by loan type for each year of the five-year period ended December 31, 2019 ($ in thousands):~~

December 31,

2019

2018

2017

2016

2015

Loans secured by real estate:

Construction, land development and other land

$
4,771

$
5,878

$
23,586

$
20,850

$
42,644

Secured by 1-4 family residential properties

17,525

22,556

61,751

69,540

97,008

Secured by nonfarm, nonresidential properties

38,206

47,979

114,694

103,820

140,264

Other real estate secured

3,946

8,253

16,746

19,010

25,146

Commercial and industrial loans

5,035

15,267

31,506

36,896

55,699

Consumer loans

520

1,356

2,600

3,365

5,641

Other loans

2,598

5,643

10,634

18,766

24,009

Acquired loans

72,601

106,932

261,517

272,247

390,411

Less allowance for loan losses, acquired loans

815

1,231

4,079

11,397

11,992

Net acquired loans

$
71,786

$
105,701

$
257,438

$
260,850

$
378,419

During 2019, acquired loans declined $34.3 million, or 32.1%, compared to balances at December 31, 2018, primarily due to pay-downs and pay-offs of these acquired loans. As the balances in the acquired loan portfolio continue to run-off, Trustmark expects that the income benefit provided by this portfolio will also decline.

For additional information regarding acquired loans, including changes in the net carrying value, see Note 6 – Acquired Loans included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~Deposits~~

Trustmark’s deposits are its primary source of funding and consist primarily of core deposits from the communities Trustmark serves. Deposits include interest-bearing and noninterest-bearing demand accounts, savings, money market, certificates of deposit and individual retirement accounts. Total deposits were $11.246 billion at December 31, 2019 compared to $11.364 billion at December 31, 2018, a decrease of $118.9 million, or 1.0%, as a result of declines in both noninterest-bearing and interest-bearing deposits. During 2019, noninterest-bearing deposits decreased $46.4 million, or 1.6%, primarily due to a decline in public demand deposit accounts partially offset by growth in commercial and consumer demand deposit accounts. Interest-bearing deposits decreased $72.5 million, or 0.9%, during 2019 principally due to declines in public interest checking accounts and all categories of time deposits, which were largely offset by growth in consumer money market deposit accounts and commercial interest checking accounts.

~~Borrowings~~

~~Trustmark uses short-term borrowings to fund growth of earning assets in excess of deposit growth.~~

Federal funds purchased and repurchase agreements totaled $256.0 million at December 31, 2019 compared to $50.5 million at December 31, 2018, an increase of $205.5 million. Of these amounts $62.5 million and $50.5 million, respectively, represented customer related transactions, such as commercial sweep repurchase balances. Excluding customer related transactions, Trustmark had $193.5 million of upstream federal funds purchased at December 31, 2019 compared to none at December 31, 2018 primarily due to the decline in public deposits.

Other borrowings totaled $85.4 million at December 31, 2019, an increase of $5.5 million, or 6.9%, when compared with $79.9 million at December 31, 2018, primarily due to the addition of building and equipment finance lease liabilities resulting from the adoption of FASB ASU 2016-02, “Leases (Topic 842),” partially offset by a decline in GNMA optional repurchase loans.

During 2018, Trustmark reduced its funding needs from external sources as a result of growth in deposits out-pacing growth in LHFI and Management’s decision to suspend reinvestment of security cash flows and allow the run-off of maturing investment securities. See the section captioned “Liquidity” for further discussion of the components of Trustmark’s excess funding capacity.

~~The table below presents information concerning qualifying components of Trustmark’s borrowings for each of the last three years ($ in thousands):~~

2019

2018

2017

Federal funds purchased and securities sold under
repurchase agreements:

Amount outstanding at end of period

$
256,020

$
50,471

$
469,827

Weighted average interest rate at end of period

1.31
%

0.37
%

1.06
%
Maximum amount outstanding at any month end during each period

$
376,712

$
524,208

$
620,698

Average amount outstanding during each period

110,915

329,649

512,085

Weighted average interest rate during each period

1.28
%

1.45
%

0.81
%

Other borrowings:

Amount outstanding at end of period

$
85,396

$
79,885

$
971,995

Weighted average interest rate at end of period

1.48
%

1.05
%

1.35
%
Maximum amount outstanding at any month end during each period

$
85,396

$
977,011

$
1,424,760

Average amount outstanding during each period

82,476

317,687

1,235,914

Weighted average interest rate during each period

0.85
%

1.58
%

1.10
%

~~Benefit Plans~~

~~Defined Benefit Plans~~

As disclosed in Note 16 – Defined Benefit and Other Postretirement Benefits included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, Trustmark maintained a noncontributory tax-qualified defined benefit pension plan, the Plan, in which substantially all associates who began employment prior to 2007 participated. As previously reported, on July 26, 2016, the Board of Directors of Trustmark authorized the termination of the Plan, effective as of December 31, 2016.

During the second quarter of 2017, Trustmark fully funded the Plan on a termination basis by contributing additional assets in the amount of $17.6 million in accordance with the IRS and Pension Benefit Guaranty Corporation requirements. Participants in the plan elected to receive either a lump sum cash payment or annuity payments under a group annuity contract purchased from an insurance carrier. Final distributions were made to participants from the Plan’s assets and a one-time pension settlement expense was recognized totaling $17.6 million.

To satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions and subsequently merged into the Plan (collectively, the Continuing Associates), on July 26, 2016, the Board of Directors of Trustmark also approved the spin-off of the portion of the Plan associated with the accrued benefits of the Continuing Associates into a new plan, the Continuing Plan, effective as of December 30, 2016, immediately prior to the termination of the Plan.

At December 31, 2019, the fair value of the Continuing Plan’s assets totaled $3.4 million and was exceeded by the projected benefit obligation of $9.1 million by $5.6 million. Net periodic benefit cost equaled $1.1 million in both 2019 and 2018, compared to $20.5 million in 2017. The decrease in the net periodic benefit cost during 2018 was principally due to the $17.6 million one-time pension settlement expense incurred during 2017 as a result of the termination of the Plan. Excluding this one-time pension settlement expense, net periodic benefit cost during 2017 totaled $2.8 million.

The fair value of plan assets is determined utilizing current market quotes, while the benefit obligation and periodic benefit costs are determined utilizing actuarial methodology with certain weighted-average assumptions. For 2019, 2018 and 2017, the process used to select the discount rate assumption under FASB ASC Topic 715 takes into account the benefit cash flow and the segmented yields on high-quality corporate bonds that would be available to provide for the payment of the benefit cash flow. Assumptions, which have been chosen to represent the estimate of a particular event as required by GAAP, have been reviewed and approved by Management based on recommendations from its actuaries.

The range of potential contributions to the Continuing Plan is determined annually by the Continuing Plan’s actuary in accordance with applicable IRS rules and regulations. Trustmark’s policy is to fund amounts that are sufficient to satisfy the annual minimum funding requirements and do not exceed the maximum that is deductible for federal income tax purposes. The actual amount of the contribution is determined annually based on the Continuing Plan’s funded status and return on plan assets as of the measurement date, which is December 31. For the plan year ending December 31, 2019, Trustmark’s minimum required contribution to the Continuing Plan was $157 thousand; however, Trustmark contributed $285 thousand. For the plan year ending December 31, 2020, Trustmark’s minimum required contribution to the Continuing Plan is expected to be $175 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout 2020 to determine any additional funding requirements by the plan’s measurement date.

~~Supplemental Retirement Plans~~

As disclosed in Note 16 – Defined Benefit and Other Postretirement Benefits included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of small nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger dates.

At December 31, 2019, the accrued benefit obligation for the supplemental retirement plans equaled $57.5 million, while the net periodic benefit cost equaled $3.0 million in 2019, $3.1 million in 2018 and $3.4 million in 2017. The net periodic benefit cost and projected benefit obligation are determined using actuarial assumptions as of the plans’ measurement date, which is December 31. The process used to select the discount rate assumption under FASB ASC Topic 715 takes into account the benefit cash flow and the segmented yields on high-quality corporate bonds that would be available to provide for the payment of the benefit cash flow. At December 31, 2019, unrecognized actuarial losses and unrecognized prior service costs continue to be amortized over future service periods.

~~Legal Environment~~

Information required in this section is set forth under the heading “Legal Proceedings” of Note 18 – Commitments and Contingencies in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~Off-Balance Sheet Arrangements~~

Information required in this section is set forth under the heading “Lending Related” of Note 18 – Commitments and Contingencies in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~Contractual Obligations~~

Trustmark is obligated to make payments under specific long-term and certain other binding contractual arrangements. The following table provides a schedule of the amount of the payments due under those obligations as of December 31, 2019 ($ in thousands):

Less than

One to Three

Three to Five

After

One Year

Years

Years

Five Years

Total

Time deposits

$
1,359,100

$
240,918

$
35,311

$
2,590

$
1,637,919

Securities sold under repurchase agreements

53,572

—

—

—

53,572

FHLB advances

—

676

—

135

811

Junior subordinated debt securities

—

—

—

61,856

61,856

Finance lease obligations

1,715

2,764

1,131

3,910

9,520

Operating lease obligations

3,864

6,935

6,749

14,806

32,354

Total

$
1,418,251

$
251,293

$
43,191

$
83,297

$
1,796,032

~~Capital Resources~~

At December 31, 2019, Trustmark’s total shareholders’ equity was $1.661 billion, an increase of $69.2 million, or 4.4%, when compared to December 31, 2018. During 2019, shareholders’ equity increased primarily as a result of net income of $150.5 million as well as an increase in the fair market value of available for sale securities, net of tax, of $33.1 million, partially offset by common stock dividends of $59.8 million and common stock repurchases of $56.6 million. Trustmark utilizes a capital model in order to

provide Management with a monthly tool for analyzing changes in its strategic capital ratios. This allows Management to hold sufficient capital to provide for growth opportunities and protect the balance sheet against sudden adverse market conditions, while maintaining an attractive return on equity to shareholders.

~~Regulatory Capital~~

Trustmark and TNB are subject to minimum risk-based capital and leverage capital requirements, as described in the section captioned “Capital Adequacy” included in Part I. Item 1. – Business of this report, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include the phased in capital conservation buffer of 2.500% and 1.875% at December 31, 2019 and 2018, respectively. AOCL is not included in computing regulatory capital. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. As of December 31, 2019, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met applicable regulatory guidelines to be considered well-capitalized at December 31, 2019. To be categorized in this manner, Trustmark and TNB maintained minimum common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios, and were not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by their primary federal regulators to meet and maintain a specific capital level for any capital measures. There are no significant conditions or events that have occurred since December 31, 2019, which Management believes have affected Trustmark’s or TNB’s present classification.

In 2006, Trustmark enhanced its capital structure with the issuance of trust preferred securities. For regulatory capital purposes, the trust preferred securities qualified as Tier 1 capital at December 31, 2019 and 2018. Trustmark intends to continue to utilize $60.0 million in trust preferred securities issued by the Trust as Tier 1 capital up to the regulatory limit, as permitted by the grandfather provision in the Dodd-Frank Act and the Basel III Final Rule.

Refer to the section captioned “Regulatory Capital” included in Note 19 – Shareholders’ Equity in Part II. Item 8. – Financial Statements and Supplementary Data of this report for an illustration of Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at December 31, 2019 and 2018.

~~Dividends on Common Stock~~

Dividends per common share for each of the years ended December 31, 2019, 2018 and 2017 were $0.92. Trustmark’s dividend payout ratio for 2019, 2018 and 2017 was 39.48%, 41.44%, and 58.97%, respectively. Approval by TNB’s regulators is required if the total of all dividends declared in any calendar year exceeds the total of its net income for that year combined with its retained net income of the preceding two years. In 2020, TNB will have available approximately $56.8 million plus its net income for that year to pay as dividends to Trustmark. The actual amount of any dividends declared in 2020 by Trustmark will be determined by Trustmark’s Board of Directors.

~~Liquidity~~

The asset side of the balance sheet provides liquidity primarily through maturities and cash flows from loans and securities as well as the ability to sell certain loans and securities while the liability portion of the balance sheet provides liquidity primarily through noninterest and interest-bearing deposits. Trustmark utilizes federal funds purchased, FHLB advances, repurchase agreements as well as the Discount Window and, on a limited basis as discussed below, brokered deposits to provide additional liquidity. Access to these additional sources represents Trustmark’s incremental borrowing capacity.

During 2018, Trustmark reduced its funding needs from external sources as a result of growth in deposits out-pacing growth in LHFI and Management’s decision to suspend reinvestment of security cash flows and allow the run-off of maturing investment securities. The reduction in Trustmark’s funding needs from external sources during 2018 is reflected in the changes in balances from various borrowing sources which are discussed below.

Deposit accounts represent Trustmark’s largest funding source. Average deposits totaled to $11.404 billion for 2019 and represented approximately 84.5% of average liabilities and shareholders’ equity, compared to average deposits of $10.980 billion, which represented 81.5% of average liabilities and shareholders’ equity for 2018.

Trustmark utilizes a limited amount of brokered deposits to supplement other wholesale funding sources. At December 31, 2019, brokered sweep Money Market Deposit Account (MMDA) deposits totaled $26.2 million compared to $23.9 million at December 31, 2018.

At December 31, 2019, Trustmark had $193.5 million of upstream federal funds purchased, compared to none at December 31, 2018. The increase in upstream federal funds purchased during 2019 was primarily due to the decline in public deposits. Trustmark maintains adequate federal funds lines to provide sufficient short-term liquidity.

Trustmark maintains a relationship with the FHLB of Dallas, which provided no outstanding short-term or long-term advances at December 31, 2019 and 2018. Under the existing borrowing agreement, Trustmark had sufficient qualifying collateral to increase FHLB advances with the FHLB of Dallas by $3.178 billion at December 31, 2019.

In addition, at December 31, 2019, Trustmark had $811 thousand in FHLB advances outstanding with the FHLB of Atlanta, which were acquired in the BancTrust merger, compared to $879 thousand at December 31, 2018. Trustmark has non-member status and thus no additional borrowing capacity with the FHLB of Atlanta.

Additionally, Trustmark has the ability to leverage its unencumbered investment securities as collateral. At December 31, 2019, Trustmark had approximately $546.0 million available in unencumbered agency securities compared to $496.2 million at December 31, 2018.

Another borrowing source is the Discount Window. At December 31, 2019, Trustmark had approximately $982.7 million available in collateral capacity at the Discount Window primarily from pledges of commercial and industrial LHFI, compared with $1.012 billion at December 31, 2018.

The Board of Directors of Trustmark currently has the authority to issue up to 20.0 million preferred shares with no par value. The ability to issue preferred shares in the future will provide Trustmark with additional financial and management flexibility for general corporate and acquisition purposes. At December 31, 2019, Trustmark had no shares of preferred stock issued and outstanding.

Liquidity position and strategy are reviewed regularly by Management and continuously adjusted in relationship to Trustmark’s overall strategy. Management believes that Trustmark has sufficient liquidity and capital resources to meet presently known cash flow requirements arising from ongoing business transactions.

~~Asset/Liability Management~~

~~Overview~~

~~Derivatives~~

derivatives employed by Trustmark are interest rate lock commitments, forward contracts (both futures contracts and options on futures contracts), interest rate swaps, interest rate caps and interest rate floors. As a general matter, the values of these instruments are designed to be inversely related to the values of the assets that they hedge (~~i.e~~., if the value of the hedged asset falls, the value of the related hedge rises). In addition, Trustmark has entered into derivatives contracts as counterparty to one or more customers in connection with loans extended to those customers. These transactions are designed to hedge interest rate, currency or other exposures of the customers and are not entered into by Trustmark for speculative purposes. Increased federal regulation of the derivatives markets may increase the cost to Trustmark to administer derivatives programs.

On April 4, 2013, Trustmark entered into a forward interest rate swap contract on junior subordinated debentures with a total notional amount of $60.0 million. The interest rate swap contract was designated as a derivative instrument in a cash flow hedge under FASB ASC Topic 815, with the objective of protecting the quarterly interest payments on Trustmark’s $60.0 million of junior subordinated debentures issued to the Trust throughout the five-year period which began December 31, 2014 and ended December 31, 2019 from the risk of variability of those payments resulting from changes in the three-month LIBOR interest rate. Under the swap, which became effective on December 31, 2014, Trustmark paid a fixed interest rate of 1.66% and received a variable interest rate based on three-month LIBOR on a total notional amount of $60.0 million, with quarterly net settlements.

No ineffectiveness related to the interest rate swap designated as a cash flow hedge was recognized in the consolidated statements of income during the years ended December 31, 2019, 2018 and 2017. The interest rate swap matured on December 31, 2019; therefore, there was no accumulated net after-tax amount related to the effective cash flow hedge included in AOCL at December 31, 2019 compared to a net after-tax gain of $469 thousand at December 31, 2018. Amounts reported in AOCL related to this derivative were reclassified to other interest expense as interest payments were made on Trustmark’s variable rate junior subordinated debentures.

As part of Trustmark’s risk management strategy in the mortgage banking business, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. Trustmark’s obligations under forward contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. The gross notional amount of Trustmark’s off-balance sheet obligations under these derivative instruments totaled $301.1 million at December 31, 2019, with a positive valuation adjustment of $953 thousand, compared to $203.2 million, with a negative valuation adjustment of $586 thousand at December 31, 2018.

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that economically hedges changes in fair value of the MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under GAAP. The total notional amount of these derivative instruments was $564.0 million at December 31, 2019 compared to $318.0 million at December 31, 2018. These exchange-traded derivative instruments are accounted for at fair value with changes in the fair value recorded as noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net negative ineffectiveness of $11.5 million for the year ended December 31, 2019, compared to a net positive ineffectiveness of $2.4 million for the year ended December 31, 2018 and a net positive ineffectiveness of $254 thousand for the year ended December 31, 2017. The net negative hedge ineffectiveness for the year ended December 31, 2019 was primarily the result of lower interest rates, a flatter yield curve, increased market volatility and greater borrower prepayment capacity.

Trustmark offers certain interest rate derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk under loans they have entered into with TNB. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships under GAAP and are, therefore, carried on Trustmark’s financial statements at fair value with the change in fair value recorded as noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. As of December 31, 2019, Trustmark had interest rate swaps with an aggregate notional amount of $893.1 million related to this program, compared to $475.8 million as of December 31, 2018.

As of December 31, 2019 and 2018, the termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.0 million and $75 thousand, respectively. As of December 31, 2019, Trustmark had posted collateral of $1.4 million against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at December 31, 2019, it could have been required to settle its obligations under the agreements at the termination value (which is expected to approximate fair market value).

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At both December 31, 2019 and 2018, Trustmark had entered into three risk participation agreements as a beneficiary with aggregate notional amounts of $37.6 million and $23.1 million, respectively. As of December 31, 2019, Trustmark had entered into ten risk participation agreements as a guarantor with an aggregate notional amount of $79.3 million compared to seven risk participation agreements as a guarantor with an aggregate notional amount of $39.0 million at December 31, 2018. The aggregate fair values of these risk participation agreements were immaterial at December 31, 2019 and 2018.

~~ITEM 7A.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~Market/Interest Rate Risk Management~~

Based on the results of the simulation models using static balances, the table below summarizes the effect various one-year interest rate shift scenarios would have on net interest income compared to a base case, flat scenario at December 31, 2019 and 2018. At December 31, 2019 and 2018, the impact of a 200 basis point drop scenario was not calculated due to the low interest rate environment.

Estimated % Change

in Net Interest Income

Change in Interest Rates

2019

2018

+200 basis points

5.7
%

-0.9
%
+100 basis points

3.0
%

-0.5
%
-100 basis points

-5.2
%

-1.2
%

Management cannot provide any assurance about the actual effect of changes in interest rates on net interest income. The estimates provided do not include the effects of possible strategic changes in the balances of various assets and liabilities throughout 2020 or additional actions Trustmark could undertake in response to changes in interest rates. Management will continue to prudently manage the balance sheet in an effort to control interest rate risk and maintain profitability over the long term.

case scenario, is the amount of EVE at risk from those rate environments. The following table summarizes the effect that various interest rate shifts would have on net portfolio value at December 31, 2019 and 2018. At December 31, 2019 and 2018, the impact of a 200 basis point drop scenario was not calculated due to the low interest rate environment.

Estimated % Change

in Net Portfolio Value

Change in Interest Rates

2019

2018

+200 basis points

5.3
%

-3.2
%
+100 basis points

3.4
%

-1.1
%
-100 basis points

-7.7
%

-1.8
%

At December 31, 2019, the MSR fair value was $79.4 million, compared to $95.6 million at December 31, 2018. The impact on the MSR fair value of a 10% adverse change in prepayment speeds or a 100 basis point increase in discount rates at December 31, 2019, would be a decline in fair value of approximately $3.5 million and $2.7 million, respectively, compared to a decline in fair value of approximately $3.3 million and $3.7 million, respectively, at December 31, 2018. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts.

~~ITEM 8.~~

~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~

~~Report of Independent Registered Public Accounting Firm~~

~~Shareholders and the Board of Directors of Trustmark Corporation~~

~~Jackson, Mississippi~~

~~Opinions on the Financial Statements and Internal Control over Financial Reporting~~

We have audited the accompanying consolidated balance sheets of Trustmark Corporation and subsidiaries (the “Corporation”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). We also have audited the Corporation’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

~~Basis for Opinions~~

The Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

~~Definition and Limitations of Internal Control Over Financial Reporting~~

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements.

~~Critical Audit Matter~~

~~Allowance for Loan Losses, Loans Held for Investment – Qualitative Risk Valuation Allowance~~

As described in Note 1 “Significant Accounting Policies” and Note 5 “LHFI and Allowance for Loan Losses, LHFI” to the consolidated financial statements, the Corporation’s allowance for loan losses consists of three components: (i) a historical valuation allowance on loans collectively evaluated for impairment determined in accordance with ASC topic 450 based on historical loan loss experience, (ii) a specific valuation allowance on loans individually evaluated for impairment determined in accordance with ASC topic 310 based on probable incurred losses on specific loans held for investment (LHFI), and (iii) a qualitative risk valuation allowance on loans collectively evaluated for impairment determined in accordance with ASC topic 450 based on general economic conditions and other specific internal and external qualitative risk factors. The allowance for loan losses is material to the financial statements in total, however the component of the estimate requiring significant judgment by management in developing their estimate is component (iii), the qualitative risk valuation allowance.

The Corporation estimates an allowance for loan losses for LHFI collectively evaluated for impairment in accordance with ASC topic 450 by segregating commercial and consumer loans into pools by loan type and market region, utilizing a 12-quarter rolling average loss rate adjusted for certain qualitative risk factors. Qualitative risk factors used in the allowance methodology for commercial loans include the following within the Corporation’s five key market regions: the experience, ability, and effectiveness of the Corporation’s lending management and staff; adherence to Trustmark’s loans policies, procedures and internal controls; the volume of exceptions relating to collateral, underwriting and financial documentation; credit concentrations; recent performance trends; regional economic trends; the impact of recent acquisitions; and the impact of significant natural disasters. Qualitative factors used in the allowance methodology for consumer loans include: economic indicators, performance trends, management experience, credit concentrations, and loan policy exceptions. Each qualitative risk factor is converted to a scale ranging from 0 (no risk) to 100 (high risk), other than the impact of recent acquisitions and the impact of significant natural disasters, which are applied on a dollar-for-dollar basis to ensure the combination of such factors is proportional. The resulting factors are weighted to establish a weighted-average qualitative risk factor within each key region. The determination of risk measurement for consumer factors is accomplished for all markets combined and converted to a risk scale similar to commercial. The qualitative portion of the allowance for loan loss also incorporates the use of maximum observed gross historical losses through the last economic cycle as a way to calculate the maximum qualitative reserve limit. The historical valuation allowance is deducted from the maximum observed loss through the last economic cycle to determine the maximum possible qualitative reserve limit. The established weighted average qualitative risk factor by region is then applied to determine the qualitative risk valuation allowance.

~~Significant judgment is exercised by the Corporation in the determination of the qualitative risk valuation allowance, including the following:~~

•

Assessing the general economic condition in the five key market regions including changes in the housing market, levels of rents and occupancy of commercial real estate, loan demand, and competition which reflects the structure and pricing of current product offerings.

•

~~Measuring and quantifying risk observed in performance trends for delinquencies, levels of criticized and classified loans, non-performing assets, and loan losses~~

•

~~Measuring internal risk encompassing changes in credit administration management~~

•

~~Quantifying risk in collateral and financial statement policy exceptions in the loan portfolio~~

•

~~Measuring risk related to shifts in loan portfolio concentration by segment~~

~~Given these factors, we identified auditing management’s estimate of the qualitative risk valuation allowance as a critical audit matter as it involved especially subjective auditor judgment.~~

~~Our primary audit procedures related to auditing management’s estimate of the qualitative risk valuation allowance included the following:~~

~~We tested the design and operating effectiveness of management’s controls over the qualitative risk valuation allowance including:~~

•

~~Reasonableness and relevance of a maximum reserve limit and risk scaling in the application of qualitative factors~~

•

~~Reasonableness of applied qualitative factors~~

•

~~Internal loan review~~

•

~~Changes in risk ratings of commercial loans~~

•

~~Completeness and accuracy of inputs into the computation of the allowance for loan losses and mathematical accuracy~~

•

~~Queries and reports utilized in the allowance for loan loss calculation~~

~~We also performed substantive testing over the qualitative risk valuation allowance including:~~

•

Tested qualitative factor adjustments to historical loss rates including comparison to external data and evaluating the reasonableness of management’s key assumptions and accuracy of weighted-average qualitative factors applied

•

~~Performed data validation of inputs and tested mathematical accuracy of management’s calculation including segmentation of the loan portfolio for loans collectively evaluated for impairment~~

•

~~Performed substantive tests of details to test completeness and accuracy of reports utilized in the allowance for loan loss calculation~~

•

~~Performed loan file reviews to test the accuracy of risk ratings, and completeness of loans individually evaluated for impairment~~

•

~~Tested accuracy of loan type and region for commercial and consumer loans~~

•

~~Reviewed loan review reports and verified any resulting risk rating changes were properly made~~

•

~~Performed substantive analytical procedures for year-end allowance balance and year-to-date provision expense~~

~~We have served as the Corporation’s auditor since 2015, which is the year the engagement letter was signed for the audit of the 2016 financial statements.~~

~~/s/ Crowe LLP~~

~~Atlanta, Georgia~~

~~February 20, 2020~~

~~Trustmark Corporation and Subsidiaries~~

~~Consolidated Balance Sheets~~

~~($ in thousands except share data)~~

December 31,

2019

2018

Assets

Cash and due from banks

$
358,916

$
349,561

Federal funds sold and securities purchased under reverse repurchase agreements

—

830

Securities available for sale (at fair value)

1,602,404

1,811,813

Securities held to maturity (fair value: $746,202-2019; $889,733-2018)

738,099

909,643

Loans held for sale (LHFS)

226,347

153,799

Loans held for investment (LHFI)

9,335,628

8,835,868

Less allowance for loan losses, LHFI

84,277

79,290

Net LHFI

9,251,351

8,756,578

Acquired loans

72,601

106,932

Less allowance for loan losses, acquired loans

815

1,231

Net acquired loans

71,786

105,701

Net LHFI and acquired loans

9,323,137

8,862,279

Premises and equipment, net

189,791

178,668

Mortgage servicing rights

79,394

95,596

Goodwill

379,627

379,627

Identifiable intangible assets, net

7,343

11,112

Other real estate

29,248

34,668

Operating lease right-of-use assets

31,182

—

Other assets

532,389

498,864

Total Assets

$
13,497,877

$
13,286,460

Liabilities

Deposits:

Noninterest-bearing

$
2,891,215

$
2,937,594

Interest-bearing

8,354,342

8,426,817

Total deposits

11,245,557

11,364,411

Federal funds purchased and securities sold under repurchase agreements

256,020

50,471

Other borrowings

85,396

79,885

Junior subordinated debt securities

61,856

61,856

Operating lease liabilities

32,354

—

Other liabilities

155,992

138,384

Total Liabilities

11,837,175

11,695,007

Shareholders' Equity

Common stock, no par value:

Authorized: 250,000,000 shares

Issued and outstanding: 64,200,111 shares - 2019; 65,834,395 shares - 2018

13,376

13,717

Capital surplus

256,400

309,545

Retained earnings

1,414,526

1,323,870

Accumulated other comprehensive loss, net of tax

(23,600
)

(55,679
)
Total Shareholders' Equity

1,660,702

1,591,453

Total Liabilities and Shareholders' Equity

$
13,497,877

$
13,286,460

~~See notes to consolidated financial statements.~~

~~Trustmark Corporation and Subsidiaries~~

~~Consolidated Statements of Income~~

~~($ in thousands except per share data)~~

Years Ended December 31,

2019

2018

2017

Interest Income

Interest and fees on LHFS & LHFI

$
440,156

$
395,969

$
344,625

Interest and fees on acquired loans

8,373

17,115

24,478

Interest on securities:

Taxable

54,649

66,082

76,192

Tax exempt

1,711

2,236

3,001

Interest on federal funds sold and securities purchased under
reverse repurchase agreements

240

14

33

Other interest income

5,363

4,196

1,466

Total Interest Income

510,492

485,612

449,795

Interest Expense

Interest on deposits

79,171

53,936

22,717

Interest on federal funds purchased and securities sold under
repurchase agreements

1,420

4,788

4,152

Other interest expense

3,312

7,468

15,376

Total Interest Expense

83,903

66,192

42,245

Net Interest Income

426,589

419,420

407,550

Provision for loan losses, LHFI

10,797

17,993

15,094

Provision for loan losses, acquired loans

42

(1,005
)

(7,395
)
Net Interest Income After Provision for Loan Losses

415,750

402,432

399,851

Noninterest Income

Service charges on deposit accounts

42,603

43,702

44,003

Bank card and other fees

31,736

28,905

28,286

Mortgage banking, net

29,822

34,674

29,902

Insurance commissions

42,396

40,481

38,168

Wealth management

30,679

30,338

30,340

Other, net

9,809

6,736

13,949

Securities gains (losses), net

—

—

15

Total Noninterest Income

187,045

184,836

184,663

Noninterest Expense

Salaries and employee benefits

247,717

238,033

229,265

Defined benefit plan termination

—

—

17,644

Services and fees

73,315

66,382

60,893

Net occupancy - premises

26,149

26,703

25,767

Equipment expense

23,733

24,830

24,453

Other real estate expense

3,906

2,002

3,672

FDIC assessment expense

6,444

9,429

11,010

Other expense

47,738

48,036

57,465

Total Noninterest Expense

429,002

415,415

430,169

Income Before Income Taxes

173,793

171,853

154,345

Income taxes

23,333

22,269

48,715

Net Income

$
150,460

$
149,584

$
105,630

Earnings Per Share

Basic

$
2.33

$
2.22

$
1.56

Diluted

$
2.32

$
2.21

$
1.56

~~See notes to consolidated financial statements.~~

~~Trustmark Corporation and Subsidiaries~~

~~Consolidated Statements of Comprehensive Income~~

~~($ in thousands)~~

Years Ended December 31,

2019

2018

2017

Net income per consolidated statements of income

$
150,460

$
149,584

$
105,630

Other comprehensive income (loss), net of tax:

Net unrealized gains (losses) on available for sale securities and
   transferred securities:

Net unrealized holding gains (losses) arising during the period

33,103

(14,416
)

(8,641
)
Reclassification adjustment for net (gains) losses realized in
   net income

—

—

(9
)
Change in net unrealized holding loss on securities transferred to
   held to maturity

2,704

2,821

2,915

Pension and other postretirement benefit plans:

Change in the actuarial loss of pension and other postretirement
   benefit plans

(4,278
)

2,806

(760
)
Reclassification adjustments for changes realized in net income:

Net change in prior service costs

187

187

154

Recognized net loss due to lump sum settlements

235

122

—

Change in net actuarial loss

597

919

1,211

Recognized net loss due to defined benefit plan termination

—

—

10,907

Derivatives:

Change in the accumulated gain (loss) on effective cash flow
   hedge derivatives

(109
)

373

122

Reclassification adjustment for (gain) loss realized in net income

(360
)

(242
)

174

Other comprehensive income (loss), net of tax

32,079

(7,430
)

6,073

Comprehensive income

$
182,539

$
142,154

$
111,703

~~See notes to consolidated financial statements.~~

~~Trustmark Corporation and Subsidiaries~~

~~Consolidated Statements of Changes in Shareholders' Equity~~

~~($ in thousands except per share data)~~

Accumulated

Other

Common Stock

Comprehensive

Shares

Capital

Retained

Income

Outstanding

Amount

Surplus

Earnings

(Loss)

Total

Balance, January 1, 2017

67,628,618

$
14,091

$
366,563

$
1,185,352

$
(45,798
)

$
1,520,208

Net income per consolidated statements of
   income

—

—

—

105,630

—

105,630

Other comprehensive income (loss),
   net of tax

—

—

—

—

6,073

6,073

Cash dividends paid on common stock
   ($0.92 per share)

—

—

—

(62,795
)

—

(62,795
)
Shares withheld to pay taxes, long-term
   incentive plan

117,476

24

(1,748
)

—

—

(1,724
)
Compensation expense, long-term
   incentive plan

—

—

4,309

—

—

4,309

Balance, December 31, 2017

67,746,094

14,115

369,124

1,228,187

(39,725
)

1,571,701

Net income per consolidated statements of
   income

—

—

—

149,584

—

149,584

Other comprehensive income (loss),
   net of tax

—

—

—

—

(7,430
)

(7,430
)
Cash dividends paid on common stock
   ($0.92 per share)

—

—

—

(62,425
)

—

(62,425
)
Shares withheld to pay taxes, long-term
   incentive plan

118,108

25

(1,451
)

—

—

(1,426
)
Accumulated other comprehensive loss
   adjustment, Tax Reform Act

—

—

—

8,524

(8,524
)

—

Repurchase and retirement of common
   stock

(2,029,807
)

(423
)

(61,998
)

—

—

(62,421
)
Compensation expense, long-term
   incentive plan

—

—

3,870

—

—

3,870

Balance, December 31, 2018

65,834,395

13,717

309,545

1,323,870

(55,679
)

1,591,453

Net income per consolidated statements of
   income

—

—

—

150,460

—

150,460

Other comprehensive income (loss),
   net of tax

—

—

—

—

32,079

32,079

Cash dividends paid on common stock
   ($0.92 per share)

—

—

—

(59,804
)

—

(59,804
)
Shares withheld to pay taxes, long-term
   incentive plan

134,564

28

(1,686
)

—

—

(1,658
)
Repurchase and retirement of common
   stock

(1,768,848
)

(369
)

(56,246
)

—

��
—

(56,615
)
Compensation expense, long-term
   incentive plan

—

—

4,787

—

—

4,787

Balance, December 31, 2019

64,200,111

$
13,376

$
256,400

$
1,414,526

$
(23,600
)

$
1,660,702

~~See notes to consolidated financial statements.~~

~~Trustmark Corporation and Subsidiaries~~

~~Consolidated Statements of Cash Flows~~

~~($ in thousands)~~

Years Ended December 31,

2019

2018

2017

Operating Activities

Net income per consolidated statements of income

$
150,460

$
149,584

$
105,630

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses, net

10,839

16,988

7,699

Depreciation and amortization

39,420

38,940

38,471

Net amortization of securities

7,789

9,181

10,964

Securities (gains) losses, net

—

—

(15
)
Gains on sales of loans, net

(27,301
)

(21,615
)

(18,933
)
Compensation expense, long-term incentive plan

4,787

3,870

4,309

Deferred income tax provision

(3,880
)

11,740

26,068

Proceeds from sales of loans held for sale

1,431,003

1,114,020

1,197,821

Purchases and originations of loans held for sale

(1,480,752
)

(1,052,339
)

(1,179,187
)
Originations of mortgage servicing rights

(16,711
)

(15,759
)

(15,860
)
Earnings on bank-owned life insurance

(5,592
)

(5,358
)

(5,025
)
Net change in other assets

(30,729
)

(1,891
)

23,451

Net change in other liabilities

13,276

(1,277
)

9,093

Other operating activities, net

23,838

(6,886
)

2,121

Net cash from operating activities

116,447

239,198

206,607

Investing Activities

Proceeds from maturities, prepayments and calls of securities held to maturity

173,385

149,308

174,976

Proceeds from maturities, prepayments and calls of securities available for sale

425,260

423,617

467,194

Proceeds from sales of securities available for sale

—

—

27,682

Purchases of securities held to maturity

—

—

(69,989
)
Purchases of securities available for sale

(177,739
)

(23,901
)

(346,159
)
Net proceeds from bank-owned life insurance

4,140

1,824

3,623

Net change in federal funds sold and securities purchased under reverse
repurchase agreements

830

(215
)

6,785

Net change in member bank stock

262

35,451

4,474

Net change in loans

(480,295
)

(140,710
)

(608,886
)
Purchases of premises and equipment

(17,327
)

(14,644
)

(13,219
)
Proceeds from sales of premises and equipment

3,248

772

8,377

Proceeds from sales of other real estate

11,182

20,502

26,849

Purchases of software

(13,412
)

(13,195
)

(5,498
)
Investments in tax credit and other partnerships

(3,426
)

(22
)

(5,296
)
Purchase of insurance book of business

(347
)

—

—

Net cash used in business acquisition

—

—

(19,775
)
Net cash from investing activities

(74,239
)

438,787

(348,862
)

Financing Activities

Net change in deposits

(118,854
)

786,899

355,342

Net change in federal funds purchased and securities sold under
repurchase agreements

205,549

(419,356
)

(69,990
)
Net change in short-term borrowings

561

(905,396
)

(67,451
)
Payments on long-term FHLB advances

(68
)

(67
)

(65
)
Payments under finance lease obligations

(1,964
)

—

—

Redemption of junior subordinated debt securities

—

—

(3,000
)
Common stock dividends

(59,804
)

(62,425
)

(62,795
)
Repurchase and retirement of common stock

(56,615
)

(62,421
)

—

Shares withheld to pay taxes, long-term incentive plan

(1,658
)

(1,426
)

(1,724
)
Net cash from financing activities

(32,853
)

(664,192
)

150,317

Net change in cash and cash equivalents

9,355

13,793

8,062

Cash and cash equivalents at beginning of year

349,561

335,768

327,706

Cash and cash equivalents at end of year

$
358,916

$
349,561

$
335,768

~~See notes to consolidated financial statements.~~

~~Note 1 – Significant Accounting Policies~~

~~Business~~

Trustmark Corporation (Trustmark) is a bank holding company headquartered in Jackson, Mississippi. Through its subsidiaries, Trustmark operates as a financial services organization providing banking and financial solutions to corporate institutions and individual customers through 193 offices in Alabama, Florida, Mississippi, Tennessee and Texas.

~~Basis of Financial Statement Presentation~~

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with these accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expense during the reporting periods and the related disclosures. Although Management’s estimates contemplate current conditions and how they are expected to change in the future, it is reasonably possible that in 2020 actual conditions could vary from those anticipated, which could affect Trustmark’s financial condition and results of operations. Actual results could differ from those estimates.

~~Securities~~

Trustmark reviews securities for impairment quarterly. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized as a component of other comprehensive income (loss), net of tax. In estimating other-than-temporary impairment losses, Management considers, among other things, the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer and Trustmark’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

~~Loans Held for Sale (LHFS)~~

Primarily, all mortgage loans purchased from wholesale customers or originated in Trustmark’s General Banking Segment are considered to be held for sale. In certain circumstances, Trustmark will retain a mortgage loan in its portfolio based on banking relationships or certain investment strategies. Trustmark has elected to account for its LHFS under the fair value option permitted by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, “Financial Instruments,” with interest income on the LHFS reported in interest and fees on LHFS and LHFI. Trustmark reports unrealized gains and losses resulting from changes in the fair value of the LHFS accounted for under the fair value option as noninterest income in mortgage banking, net. LHFS are actively managed and monitored and certain market risks of the loans may be mitigated through the use of derivatives. These derivative instruments are carried at fair value with changes in the fair value reported as noninterest income in mortgage banking, net. Changes in the fair value of the LHFS are largely offset by changes in the fair value of the derivative instruments. Election of the fair value option allows Trustmark to reduce the accounting volatility that would otherwise result from the asymmetry

created by accounting for its LHFS at the lower of cost or fair value and the derivative instruments at fair value. Realized gains and losses upon ultimate sale of the loans are reported as noninterest income in mortgage banking, net.

~~Loans Held for Investment (LHFI)~~

LHFI are stated at the amount of unpaid principal, adjusted for the net amount of direct costs and nonrefundable loan fees associated with lending. The net amount of nonrefundable loan origination fees and direct costs associated with the lending process, including commitment fees, is deferred and accreted to interest income over the lives of the loans using a method that approximates the interest method. Interest on LHFI is accrued and recorded as interest income based on the outstanding principal balance.

Past due LHFI are loans contractually past due 30 days or more as to principal or interest payments. A LHFI is classified as nonaccrual, and the accrual of interest on such loan is discontinued, when the contractual payment of principal or interest becomes 90 days past due on commercial credits and 120 days past due on non-business purpose credits. In addition, a credit may be placed on nonaccrual at any other time Management has serious doubts about further collectibility of principal or interest according to the contractual terms, even though the loan is currently performing. A LHFI may remain in accrual status if it is in the process of collection and well secured. When a LHFI is placed in nonaccrual status, interest accrued but not received is reversed against interest income. Interest payments received on nonaccrual LHFI are applied against principal under the cost-recovery method, until qualifying for return to accrual status. Under the cost-recovery method, interest income is not recognized until the principal balance is reduced to zero. LHFI are restored to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

A LHFI is considered impaired when, based on current information and events, it is probable that Trustmark will be unable to collect all amounts due according to the contractual terms of the loan agreement. In accordance with FASB ASC Subtopic 310-40-35, “Troubled Debt Restructurings by Creditors: Subsequent Measurement,” all loans restructured in a troubled debt restructuring (TDR), without regard to a loan’s accrual status, are impaired loans. Additionally, Trustmark specifically reviews all commercial nonaccrual relationships of $500 thousand or more for impairment. Trustmark considers all commercial nonaccrual relationships of $500 thousand or more, which have been specifically reviewed for impairment and deemed impaired, and all LHFI classified as TDRs to be individually evaluated impaired LHFI. 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 charged off or a specific reserve is established. As subsequent events dictate and estimated net realizable values change, further adjustments may be necessary. Commercial nonaccrual relationships under $500 thousand are not specifically reviewed for impairment due to the insignificant number and dollar amount of these types of loans. Nonaccrual LHFI includes both individually evaluated impaired LHFI as well as smaller balance homogeneous loans that are collectively evaluated for impairment. Consistent with the policy for nonaccrual LHFI, interest payments on impaired LHFI, with the exception of TDRs in accrual status, are applied to principal. Impaired LHFI, or portions thereof, are charged off when deemed uncollectible.

~~Troubled Debt Restructuring~~

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.

~~A formal TDR may include, but is not necessarily limited to, one or a combination of the following situations:~~

•

~~Trustmark accepts a third-party receivable or other asset(s) of the borrower, in lieu of the receivable from the borrower.~~

•

~~Trustmark accepts an equity interest in the borrower in lieu of the receivable.~~

•

~~Trustmark accepts modification of the terms of the debt including but not limited to:~~

~~Reduction (absolute or contingent) of the stated interest rate to below the current market rate.~~

~~Extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk.~~

~~Reduction (absolute or contingent) of the face amount or maturity amount of the debt as stated in the note or other agreement.~~

~~Reduction (absolute or contingent) of accrued interest.~~

Troubled debt restructurings are addressed in Trustmark’s loan policy, and in accordance with that policy, any modifications or concessions that may result in a TDR are subject to a special approval process which allows for control, identification, and monitoring of these arrangements. Prior to granting a concession, a revised borrowing arrangement is proposed which is structured so as to improve collectability of the loan in accordance with a reasonable repayment schedule with any loss promptly identified. It is supported by a thorough evaluation of the borrower’s financial condition and prospects for repayment under those revised terms. Other TDRs arising from renewals or extensions of existing debt are routinely identified through the processes utilized in the Problem Loan Committee and in the Credit Quality Review Committee. TDRs are subsequently reported to the Directors’ Credit Policy Committee on a quarterly basis and are disclosed in Trustmark’s consolidated financial statements in accordance with GAAP and regulatory reporting guidance.

All loans whose terms have been modified in a troubled debt restructuring are evaluated for impairment under FASB ASC Topic 310, “Receivables.” 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. Thus, the loan is treated as if assets have been received in satisfaction of the loan and reported as a foreclosed asset.

~~Allowance for Loan Losses, LHFI~~

The allowance for loan losses, LHFI is established through provisions for estimated loan losses charged against net income. The allowance account is maintained at a level which is believed to be adequate by Management based on estimated probable losses within the LHFI portfolio. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Some of the factors considered, such as amounts and timing of future cash flows expected to be received, may be susceptible to significant change.

Trustmark’s allowance methodology is based on guidance provided in Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues,” as well as other regulatory guidance. The allowance for loan losses, LHFI consists of 3 components: (i) a historical valuation allowance determined in accordance with FASB ASC Topic 450, “Contingencies,” based on historical loan loss experience for LHFI with similar characteristics and trends, (ii) a specific valuation allowance determined in accordance with FASB ASC Topic 310 based on probable losses on specific LHFI and (iii) a qualitative risk valuation allowance determined in accordance with FASB ASC Topic 450 based on general economic conditions and other specific internal and external qualitative risk factors. Each of these components calls for estimates, assumptions and judgments as described below.

~~Historical Valuation Allowance~~

The historical valuation allowance is derived by application of a historical net loss percentage to the outstanding balances of LHFI contained in designated pools and risk rating categories. Pools are established by grouping credits that display similar characteristics

and trends such as commercial LHFI for working capital purposes and non-working capital purposes, commercial purpose LHFI secured by real estate (which are further segregated into 1-4 family construction, non 1-4 family construction, land, lots and development, owner-occupied and nonowner-occupied categories), other commercial loans, 1-4 family LHFI, 1-4 family LHFI secured by junior liens and other consumer LHFI. Within these pools, LHFI are further segregated based on Trustmark’s internal credit risk rating process that evaluates, among other things: the obligor’s ability and willingness to pay, the value of underlying collateral, the ability of guarantors to meet their payment obligations, management experience and effectiveness, and the economic environment and industry in which the borrower operates. The historical net loss percentages, calculated on a quarterly basis, are proportionally distributed to each risk rate within loan groups based upon degree of risk. Using third-party default data, which is updated annually to incorporate the most recent year’s information, average cumulative issuer-weighted global default rates by alphanumeric rating are aggregated by Trustmark’s commercial loan risk rates. Management uses the long-term default rates to measure the relative risk across the risk rates while the 12-quarter quantitative loss rate sets the absolute level of allowance for loan loss reserve. Further, given the volatility in the default data, the longer look-back period provides for a more stable allowance for loan loss estimate which better reflects the incremental risk across the risk rates.

The historical net loss percentages are calculated using a 12 quarter look-back period, which is the period that best reflects losses inherent in the current loan portfolio. The look-back period sufficiently captures the volatility in net charge-off rates from quarter to quarter and affects the qualitative adjustments that are required to capture the differences in conditions between the current period and those that were prevailing during the look-back period.

The loss emergence period (LEP) refers to the period of time between the events that trigger a loss and charge-off of that loss. Losses are usually not immediately known and determining the loss event can be difficult. It takes time for the borrower and extent of loss to be identified and determined. Management may not be aware that the loss event has occurred until the borrower exhibits the inability to pay or other evidence of credit deterioration. The LEP is evaluated annually to incorporate the most recent year’s data and adjusted as necessary.

~~Loans-Specific Valuation Allowance~~

Once a LHFI is classified, it is subject to periodic review to determine whether or not the loan is impaired. If determined to be impaired, the loan is evaluated using one of the valuation criteria contained in FASB ASC Topic 310 (i.e., individually or collectively evaluated), and a specific valuation allowance is allocated, if necessary, so that the loan is reported at the net realizable value.

~~Qualitative Risk Valuation Allowance~~

The qualitative risk valuation allowance is based on general economic conditions and other internal and external factors affecting Trustmark as a whole as well as specific LHFI. Factors considered include the following within Trustmark’s 5 key market regions: the experience, ability, and effectiveness of Trustmark’s lending management and staff; adherence to Trustmark’s loans policies, procedures and internal controls; the volume of exceptions relating to collateral, underwriting and financial documentation; credit concentrations; recent performance trends; regional economic trends; the impact of recent acquisitions; and the impact of significant natural disasters. These factors are evaluated on a quarterly basis with the results representing Trustmark’s qualitative risk profile in the current period which is used to establish an appropriate allowance. The qualitative portion of the commercial and consumer LHFI allowance for loan loss methodology also incorporates the use of maximum observed gross historical losses observed through the last economic cycle as a way to calculate a maximum qualitative reserve limit. The maximum observed gross historical losses as a percentage of the loan balances results in a maximum observed gross historical loss rate. Once the quantitative component of the allowance for loan loss methodology is calculated, the quantitative reserve percentage is deducted from the maximum observed gross historical loss rate to determine the maximum possible qualitative reserve limit. Management uses its qualitative factor evaluation process in conjunction with this maximum to determine the appropriate estimate of the qualitative considerations not captured by Trustmark’s historical loss rates.

Other factors included in the qualitative risk valuation allowance include consideration of: commercial loan facility risk that embodies the nature, frequency and duration of the repayment structure as it pertains to the actual source of loan repayment, commercial nonaccrual relationships under $500 thousand which are below the threshold to perform a specific impairment analysis, and independent consumer credit bureau scores that are monitored to identify shifts in risk that are represented in the retail portfolio. These factors are also evaluated on a quarterly basis with the exception of the commercial nonaccrual relationships under $500 thousand which are evaluated monthly.

Commercial purpose LHFI are charged off when a determination is made that the loan is uncollectible and continuance as a bankable asset is not warranted. Consumer LHFI secured by 1-4 family residential real estate are generally charged off or written down to the fair value of the collateral less cost to sell at no later than 180 days of delinquency. Non-real estate consumer purpose LHFI, including both secured and unsecured loans, are generally charged off by 120 days of delinquency. Consumer revolving lines of credit

and credit card debt are generally charged off on or prior to 180 days of delinquency. LHFI are charged off against the allowance for loan losses, LHFI, with any subsequent recoveries credited back to the allowance account.

~~Acquired Loans~~

Acquired loans are accounted for under the acquisition method of accounting. The acquired loans are recorded at their estimated fair value at the time of acquisition. The fair value of acquired loans is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of defaults and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date.

Trustmark accounts for acquired impaired loans under FASB ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” An acquired loan is considered impaired when there is evidence of credit deterioration since origination and it is probable at the date of acquisition that Trustmark would be unable to collect all contractually required payments. Acquired loans accounted for under FASB ASC Subtopic 310-30 are referred to as “acquired impaired loans.” Revolving credit agreements, such as home equity lines, and commercial leases are excluded from acquired impaired loan accounting requirements.

For acquired impaired loans, Trustmark (i) calculates the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”) and (ii) estimates the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). Under FASB ASC Subtopic 310-30, the difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the acquired impaired loan portfolio, and such amount is subject to change over time based on the performance of such loans. The excess of undiscounted expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the “accretable yield” and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable. Under the effective yield method, the accretable yield is recorded as an accretion of interest income over the life of the loan.

Trustmark aggregates certain acquired impaired loans into pools of loans with common credit risk characteristics such as loan type and risk rating. To establish accounting pools of acquired impaired loans, loans are first categorized by similar purpose, collateral and geographic region. Within each category, the acquired impaired loans are further segmented by ranges of risk determinants observed at the time of acquisition. For commercial loans, the primary risk determinant is the risk rating as assigned by Trustmark. For consumer loans, the risk determinants include delinquency, delinquency history and FICO scores. Statistical comparison of the pools reflect that each pool is comprised of acquired impaired loans generally of similar characteristics, including loan type, loan risk and weighted average life. Each pool is then reviewed for similarity of the pool constituents, including standard deviation of purchase price, weighted average life and concentration of the largest loans. Loan pools are initially booked at the aggregate fair value of the loan pool constituents, based on the present value of Trustmark's expected cash flows from the acquired impaired loans. An acquired impaired loan is removed from a pool of loans only if the loan is sold, foreclosed, payment is received in full satisfaction of the loan or the loan is fully charged off. The acquired impaired loan is removed from the pool at the carrying value. When an individual acquired impaired loan is removed from a pool of loans, the difference between its relative carrying amount and the cash, collateral (measured at fair value) or other assets received will be recognized as a gain or loss immediately in interest income on acquired loans and would not affect the effective yield used to recognize the accretable yield on the remaining pool. Certain acquired impaired loans are not pooled and are accounted for individually. Such acquired impaired loans are withheld from pools due to the inherent uncertainty of the timing and amount of their cash flows or because they are not a suitable similar constituent to the established pools.

As required by FASB ASC Subtopic 310-30, Trustmark periodically re-estimates the expected cash flows to be collected over the life of the acquired impaired loans. If, based on current information and events, it is probable that Trustmark will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition, the acquired loans are considered impaired. The decrease in the expected cash flows reduces the carrying value of the acquired impaired loans as well as the accretable yield and results in a charge-off through the allowance for loan losses, acquired loans or the establishment of an allowance for loan losses, acquired loans with a charge to income through the provision for loan losses, acquired loans. If, based on current information and events, it is probable that there is a significant increase in the cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected, Trustmark will reduce any remaining allowance for loan losses, acquired loans established on the acquired impaired loans for the increase in the present value of cash flows expected to be collected. The increase in the expected cash flows for the acquired impaired loans over those originally estimated at acquisition increases the carrying value of the acquired impaired loans as well as the accretable yield. The increase in the accretable yield is recognized as interest income prospectively over the remaining life of the acquired impaired loans. The carrying value of acquired impaired loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income.

Under FASB ASC Subtopic 310-30, acquired impaired loans are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when expected cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans as long as the estimated cash flows are received as expected. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income may be recognized on a cash basis or as a reduction of the principal amount outstanding.

~~Premises and Equipment, Net~~

~~Mortgage Servicing Rights (MSR)~~

~~Goodwill and Identifiable Intangible Assets~~

~~Other Real Estate~~

Other real estate includes assets that have been acquired in satisfaction of debt through foreclosure and is carried at the lower of cost or estimated fair value. Fair value is based on independent appraisals and other relevant factors. Valuation adjustments required at foreclosure are charged to the allowance for loan losses. Other real estate is revalued on an annual basis or more often if market conditions necessitate. An other real estate specific reserve may be recorded through other real estate expense for declines in fair value subsequent to foreclosure based on recent appraisals or changes in market conditions. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged against an existing other real estate specific reserve or as noninterest expense in other real estate expense if a reserve does not exist. Costs of operating and maintaining the properties as well as gains or losses on their disposition are also included in other real estate expense as incurred. Improvements made to properties are capitalized if the expenditures are expected to be recovered upon the sale of the properties.

~~Leases~~

~~ASU 2016-02, “Leases (Topic 842),” became effective for Trustmark on January 1, 2019. Trustmark adopted FASB ASC Topic 842utilizing the modified-retrospective transition approach prescribed by~~ ~~ASU 2018-11, “Leases (Topic 842): Targeted Improvements”~~.Trustmark did not elect to adopt the package of practical expedients, which includes reassessing whether any expired or existing contracts are or contain leases, reassessing the lease classification and reassessing initial direct costs. Also, Trustmark did not elect to adopt the hindsight practical expedient therefore maintaining the lease terms previously determined under FASB ASC Topic 840, “Leases”. Trustmark made an accounting policy election to not recognize short-term leases (12 months or less) on the balance sheet. Trustmark accounts for the lease and nonlease components separately as such amounts are readily determinable.

Once Trustmark identifies and determines certain contracts are leases according to FASB ASC Topic 842, Trustmark classifies it as an operating or a finance lease and recognizes a right-of-use asset and a lease liability at the lease commencement date. The lease liability represents the present value of the lease payments that remain unpaid as of the commencement date and the right-of-use asset is the initial lease liability recognized for the lease plus any lease payments made to the lessor at or before the commencement date as well as any initial direct costs less any lease incentives received.

Trustmark’s operating leases primarily consist of building and land leases. Trustmark recognizes lease rent expense on a straight-line basis over the term of the lease contract and records it as noninterest expense in net occupancy – premises for building and land leases and in equipment expense for equipment leases. Trustmark’s amortization of the right-of-use asset is the difference between the straight-line lease expense and the interest expense recognized on the lease liability during the period. ~~Trustmark’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term.~~

In order to calculate its right-of-use assets and lease liabilities, FASB ASC Topic 842 requires Trustmark to use the rate of interest implicit in the lease when readily determinable. If the rate implicit in the lease is not readily determinable, Trustmark is required to use its incremental borrowing rate, which is the rate of interest Trustmark would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. Trustmark was able to determine the implicit interest rate for its equipment leases and used that rate as its discount rate. Since the implicit interest rate for most of its building and land leases were not readily determinable, Trustmark used its incremental borrowing rate.

Trustmark’s short-term leases primarily include automated teller machines. For short-term leases, Trustmark recognizes lease expense on a straight-line basis over the lease term. As previously stated, Trustmark has elected not to include short-term leases on its balance sheet.

~~Federal Home Loan Bank (FHLB) and Federal Reserve Bank of Atlanta Stock~~

securities that do not have a readily determinable fair value because its ownership is restricted and it lacks a market. FHLB and Federal Reserve Bank stock are carried at cost and evaluated for impairment. Trustmark’s investment in member bank stock is included in other assets in the accompanying consolidated balance sheets. At December 31, 2019 and 2018, Trustmark’s investment in member bank stock totaled $~~31.9~~ ~~million and $32.2~~ ~~million, respectively. The carrying value of Trustmark’s member bank stock gave rise to no other-than-temporary impairment for the years ended December 31, 2019, 2018 and 2017.~~

~~Revenue from Contracts with Customers~~

~~General Banking Segment~~

~~Service Charges on Deposit Accounts~~

~~Bank Card and Other Fees~~

As both a debit and credit card issuer, Trustmark receives an interchange fee for every card transaction completed by its customers with a merchant. Trustmark receives 2 types of interchange fees: point-of-sale transactions in which the customer must enter the PIN associated with the card to complete the transaction (a debit card transaction), and signature transactions in which the signature of the customer is required to complete the transaction (a credit card transaction).

fees are established by the payment network based on the type of transaction and is posted on their website. Trustmark receives and records interchange fee revenue from the payment networks daily net of all fees and amounts due to the payment network.

~~Other Income~~130

Trustmark receives a set service charge or maintenance fee amount as consideration monthly for services rendered. However, some of the fees are based on the number of transactions that occur (i.e. flat fee for a set number of transactions per month then an additional charge for each transaction after that) or the average daily account balance maintained by the customer during the month and a small amount of the cash management fee revenue is subject to refund provisions. These fees represent variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient permitted under FASB ASC Topic 606 for recognition of cash management fee revenue. The cash management revenue is presented net of any refunded amounts on Trustmark’s consolidated statements of income.

~~Other Real Estate~~

Trustmark records a gain or loss from the sale of other real estate when control of the property transfers to the buyer. Trustmark records the gain or loss from the sale of other real estate in noninterest expense as other real estate expense. Other real estate sales for the year ended December 31, 2019 resulted in net losses of $291 thousand compared to net gains of $700 thousand for the year ended December 31, 2018 and $2.1 million for the year ended December 31, 2017.

~~Wealth Management Segment~~

~~Trust Management~~

There are 5 categories of revenue included in trust management: personal trust and investments, retirement plan services, institutional custody, corporate trust and other. Each of these categories includes multiple types of contracts, service obligations and fee income. However, the majority of these contracts include a single service obligation that is satisfied over time, the customer is

charged in arrears for services rendered and revenue is recognized when payment is received. In general, the time period between when the service obligation is completed and when payment from the customer is received is less than 30 days. Revenue from trust management contracts is primarily related to monthly service periods and based on the prior month-end’s market value. Some trust management revenue is mandated by a court order, while other revenue consists of flat fees. Trust management revenue based on an account’s market value represents variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient allowed under FASB ASC Topic 606 to account for the trust management revenue.

~~Assets under administration held by Trustmark in a fiduciary or agency capacity for customers are not included in Trustmark’s consolidated balance sheets.~~

~~Investment Services~~

~~Insurance Segment~~

Fisher Brown Bottrell Insurance, Inc. (FBBI), a wholly-owned subsidiary of Trustmark National Bank (TNB), operates as an insurance broker representing the policyholder and has no allegiance with any one insurance provider. FBBI serves as the agent between the insurance provider (either insurance carrier or broker), the principal, and the policy holder, the customer. FBBI has 4 general categories of insurance contracts: commercial, commercial installments, personal and employee benefits. FBBI’s insurance contracts contain a single performance obligation, policy placement, which is satisfied at a point in time. FBBI’s performance obligation is satisfied as of the policy effective date.

Insurance Producers at FBBI earn commission as compensation for each policy they are responsible for placing. Commissions are not paid to Producers immediately at the policy effective date, can be subject to clawback provisions and can vary by Producer. Effective April 1, 2018, FBBI implemented a ‘pay when paid’ system. Under the ‘pay when paid’ system, Producers receive the commissions

for which they are entitled at the end of the month following the month in which FBBI receives payment from the insurance provider or customer. Under FASB ASC Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers,” the commission paid to the Producers is an incremental cost of obtaining a contract, which should be capitalized and amortized in a manner consistent with the pattern of transfer of the service related to the contract acquisition asset. Insurance contracts have a term of one year or less; therefore, Trustmark has elected the cost of obtaining a contract practical expedient allowed under FASB ASC Subtopic 340-40, which allows FBBI to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the contract asset that FBBI otherwise would have recognized is one year or less. Commission expense is recorded as noninterest expense in salaries and employee benefits when paid to the Producers.

~~Commercial Insurance~~

~~Personal Insurance~~

~~Employee Benefits Insurance~~

Revenue from FBBI’s employee benefits insurance contracts consists of a variable commission amount, which is not subject to clawback provisions, and is recognized when payment is received, typically on a monthly basis. Employee benefits insurance contracts have a set commission rate, but can vary from period to period based on changes in the number of employees covered by the policy (i.e. new hires and terminations). FBBI generally receives twelve monthly commission payments for these contracts with the initial payment being received approximately 60-90 days after the policy effective date. Under the guidelines of FASB ASC Topic 606, commissions from employee benefits insurance contracts represent fixed consideration because at contract inception (policy effective date) there is a set commission rate times a known number of covered employees. Changes in the number of covered employees are not known, nor can they be predicted, at contract inception. An increase or decrease in the number of covered employees after the policy effective date is considered a contract modification resulting from a change in scope and transaction price under FASB ASC Topic 606. This modification is treated as part of the existing contract because it does not add a distinct service. Employee benefits insurance contracts have a term of one year; therefore, recognizing the revenue from these contracts when payment is received is not materially different than recognizing the revenue at the policy effective date or the contract modification date for any given period.

~~Contingency Commission Insurance~~

~~Derivative Financial Instruments~~

~~Derivatives Designated as Hedging Instruments~~

Trustmark entered into a forward interest rate swap contract on its junior subordinated debentures, with the objective of protecting the quarterly interest payments from the risk of variability of those payments resulting from changes in the three-month LIBOR interest rate, for the ~~five-year~~ period which began December 31, 2014 and ended December 31, 2019. This derivative instrument was designated as a cash flow hedge under FASB ASC Topic 815. The interest rate swap matured on December 31, 2019; therefore, there was 0 accumulated net after-tax amount related to the effective cash flow hedge included in accumulated other comprehensive loss at December 31, 2019. Any accumulated net after-tax gains or losses related to effective cash flow hedge in the relevant periods were included in accumulated other comprehensive income (loss), net of tax. Any ineffective portion of the interest rate swap was reclassified from accumulated other comprehensive income (loss), net of tax to noninterest expense in the consolidated statements of income for the relevant periods. Amounts reported in accumulated other comprehensive income (loss), net of tax related to this derivative in the relevant periods were reclassified to other interest expense as interest payments were made on Trustmark’s variable rate junior subordinated debentures.

~~Derivatives Not Designated as Hedging Instruments~~

~~Income Taxes~~

~~Stock-Based Compensation~~

~~Statements of Cash Flows~~

Years Ended December 31,

2019

2018

2017

Income taxes paid

$
24,809

$
12,435

$
7,371

Interest paid on deposits and borrowings

83,997

66,358

41,472

Noncash transfers from loans to other real estate

8,598

12,115

8,760

Investment in tax credit partnership not funded

5,000

—

—

Financing right-of-use assets resulting from lease liabilities

9,326

—

—

Operating right-of-use assets resulting from lease liabilities

31,182

—

—

Transfer of long-term FHLB advances to short-term

—

—

250,038

Assets acquired in business combination

—

—

196,265

Liabilities assumed in business combination

—

—

184,949

~~Per Share Data~~

~~The following table reflects weighted-average shares used to calculate basic and diluted EPS for the periods presented (in thousands):~~

Years Ended December 31,

2019

2018

2017

Basic shares

64,630

67,505

67,727

Dilutive shares

142

154

160

Diluted shares

64,772

67,659

67,887

Weighted-average antidilutive stock awards were excluded in determining diluted EPS. The following table reflects weighted-average antidilutive stock awards for the periods presented (in thousands):

Years Ended December 31,

2019

2018

2017

Weighted-average antidilutive stock awards

—

1

74

~~Fair Value Measurements~~

~~Level 1 Inputs – Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that Trustmark has the ability to access at the measurement date.~~

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. Trustmark’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer.

~~Accounting Policies Recently Adopted~~

~~Except for the changes detailed below, Trustmark has consistently applied its accounting policies to all periods presented in the accompanying consolidated financial statements.~~

~~ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”~~ Issued in August 2017, ASU 2017-12 aims to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in ASU 2017-12 aim to better align an entity’s risk management activities and financial reporting for hedging relationships by expanding and refining hedge accounting for both non-financial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in ASU 2017-12 (i) permit hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk; (ii) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (iii) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (iv) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-country basis spread from the assessment of hedge effectiveness. The amendments of ASU 2017-12 also include targeted improvements intended to simplify the application of hedge accounting. All transition requirements and elections must be applied to all hedging relationships existing at the date of adoption. The amendments of ASU 2017-12 became effective for Trustmark on January 1, 2019. ASU 2017-12 did not have any impact to Trustmark’s existing hedging relationships at adoption; therefore, the adoption of ASU 2017-12 did not have a material impact on Trustmark’s consolidated financial statements.

~~ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.”~~ Issued in March 2017, ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. In particular, the amendments in ASU 2017-08 require the premium to be amortized to the earliest call date. The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity. Notably, the amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. Securities within the scope of ASU 2017-08 are purchased debt securities that have explicit, noncontingent call features that are callable at fixed prices and on preset dates. The amendments of ASU 2017-08 became effective for Trustmark on January 1, 2019. Trustmark’s total unamortized premium for purchased debt securities within the scope of ASU 2017-08 is immaterial; therefore, the adoption of ASU 2017-08 did not have a material impact on Trustmark’s consolidated financial statements.

~~ASU 2016-02, “Leases (Topic 842).”~~ Issued in February 2016, ASU 2016-02 was issued by the FASB to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key

information about leasing arrangements. ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842: Leases,” which provides corrections or improvements to a number of areas within FASB ASC Topic 842 and has the same transition guidance and effective date as ASU 2016-02. The FASB also issued ASU 2018-11, “Leases (Topic 842)-Targeted Improvements”, in July 2018, which provides entities with an additional and optional transition method to adopt the new lease standard and, for lessors only, a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component. The amendments in ASU 2018-11 allow an entity the option to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as opposed to at the beginning of the earliest period presented in the financial statements. The amendments of ASU 2018-11 have the same effective date as ASU 2016-02. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” which provides targeted improvements and clarification to guidance with FASB ASC Topic 842 specific to lessors. The amendments of ASU 2018-20 have the same effective date as ASU 2016-02 and may be applied either retrospectively or prospectively to all new and existing leases. Trustmark has an immaterial amount of leases in which it is the lessor and adoption of ASU 2016-02 did not have a material impact to these leases or the related income. Trustmark obtained a third-party software application which will provide lease contract maintenance and lease accounting under the guidelines of FASB ASC Topic 842. All existing lease contracts, with the exception of short-term leases, were loaded into the software application and reviewed by Management. The amendments of ASU 2016-02 and subsequently issued ASUs, which provided additional guidance and clarifications to various aspects of FASB ASC Topic 842, became effective for Trustmark on January 1, 2019. Trustmark adopted the amendments in this ASU using the optional transition method allowable under ASU 2018-11, and was not required to recognize any cumulative-effect adjustment to the opening balance of retained earnings. During the first quarter of 2019, Trustmark recorded operating lease right-of-use assets and operating lease liabilities of $33.9 million and $34.9 million, respectively, in its consolidation balance sheet. Additionally, Trustmark recorded finance lease right-of-use assets, net of accumulated depreciation, of $11.2 million in premises and equipment, net and finance lease liabilities of $11.2 million in other borrowings. Trustmark’s total lease right-of-use assets, net represented approximately 0.3% of its total assets as of March 31, 2019; therefore, the adoption of ASU 2016-02 did not have a material impact on Trustmark’s consolidated financial statements. Disclosures required by the amendments of ASU 2016-02 are included in Note 11 – Leases of this report.

~~Pending Accounting Pronouncements~~

~~ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”~~ Issued in December 2019, ASU 2019-12 seeks to simplify the accounting for income taxes by removing certain exceptions to the general principles in FASB ASC Topic 740, Income Taxes. In particular, the amendments of ASU 2019-12 remove the exceptions to (1) the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items (e.g., discontinued operations or other comprehensive income); (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments of ASU 2019-12 (1) require that an entity recognize a franchise tax (or similar tax), that is partially based on income, in accordance with FASB ASC Topic 740 and account for any incremental amount incurred as a non-income-based tax; (2) require that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should instead be considered a separate transaction; (3) specify that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, but rather may elect to do so for a legal entity that is both not subject to tax and disregarded by the taxing authority; and (4) require that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The amendments related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. Trustmark intends to adopt the amendments in ASU 2019-12 during the first quarter of 2021. Adoption of ASU 2019-12 is not expected to have a material impact to Trustmark’s consolidated financial statements.

ASU 2018-15, “Intangibles-Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Issued in August 2018, ASU 2018-15 aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments of ASU 2018-15 require an entity to follow the guidance in FASB ASC Subtopic 350-40, “Intangibles-Goodwill and Other-Internal-Use Software,” in order to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments of ASU 2018-15 also require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (i.e. the noncancellable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the entity is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the entity is reasonably certain not to exercise the option, and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor). ASU 2018-15 also requires an entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement, and to classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. ASU 2018-15 became effective for Trustmark on January 1, 2020. Trustmark does not currently have any material amount of implementation costs related to hosting arrangements that are service contracts within the scope of this ASU; therefore, adoption of ASU 2018-15 did not impact to Trustmark’s consolidated financial statements.

~~ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.”~~ Issued in August 2018, ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in ASU 2018-14 remove certain disclosure requirements that are no longer considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. T~~he amendments of ASU 2018-14 become effective for fiscal years beginning after December 15, 2020. Trustmark plans to adopt these amendments during the first quarter of 2021.~~ Management is currently assessing all the potential impacts of the amendments in ASU 2018-14 on Trustmark’s consolidated financial statements; however, the adoption of ASU 2018-14 is not expected to have a material impact on Trustmark’s consolidated financial statements.

~~ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.”~~ Issued in August 2018, the amendments in this ASU remove disclosure requirements in FASB ASC Topic 820 related to (1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3 fair value measurements; and (4) for non-public entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The ASU also modifies disclosure requirements such that (1) in place of a rollforward for Level 3 fair value measurements, a non-public entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; (2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date that restrictions from redemption might lapse, only if the investee has communicated the timing to the entity or announced the timing publicly; and (3) it is clear that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additionally, this ASU adds disclosure requirements for public entities about (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments of ASU 2018-13 became effective for Trustmark on January 1, 2020. Adoption of ASU 2018-13 did not have a material impact on Trustmark’s consolidated financial statements, and changes to disclosures as required by the amendments of ASU 2018-13 will be presented beginning with the Quarterly Report on Form 10-Q for the period ending March 31, 2020.

~~ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”~~ Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 became effective for Trustmark on January 1, 2020, and the amendments of this ASU will be applicable to the annual goodwill impairment

test performed as of October 1, 2020. Based on Trustmark’s annual goodwill impairment test performed as of October 1, 2019, the fair value of its reporting units exceeded the carrying value and, therefore, the related goodwill was not impaired. The adoption of ASU 2017-04 is not expected to have a material impact on Trustmark’s consolidated financial statements.

~~ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”~~ Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Additionally, the amendments of ASU 2016-13 require that credit losses on available for sale debt securities be presented as an allowance rather than as a write-down. The amendments of ASU 2016-13, and all subsequent ASUs issued by FASB to provide additional guidance and clarification related to this Topic, became effective for Trustmark on January 1, 2020.

As previously disclosed, Trustmark established a cross-functional Current Expected Credit Loss (CECL) Steering Committee, a CECL Solution Development Working Group and a CECL Working Group which included the appropriate members of Management to evaluate the impact this ASU, and all subsequent ASUs issued by FASB, will have on Trustmark’s financial position, results of operations and financial statement disclosures and determine the most appropriate method of implementing the amendments in these ASUs as well as any resources needed to implement the amendments. Trustmark selected a third-party vendor to provide allowance for loan loss software as well as advisory services in developing a new methodology that would be compliant with amendments of ASU 2016-13, and is working with the approved third-party vendor to finalize the impact to Trustmark.

Based upon preliminary modeling results, Management estimates the allowance related to loans will increase. Trustmark expects to recognize a one-time cumulative effect adjustment through retained earnings at the date of adoption. Trustmark intends to estimate losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then revert to longer term historical loss experience over a one-year period to estimate losses. Currently, Trustmark expects the increase in the allowance to be in the range of $10.0 million to $35.0 million, primarily driven by unfunded commitment exposure, economic forecasts and uncertainty. This estimated range includes a qualitative adjustment to the allowance for credit losses related to loans and an allowance on unfunded loan commitments. The estimate is subject to further refinement based on continuing reviews and testing of Management’s judgements, current and forecasted macroeconomic conditions and the composition of the loan portfolio, as well as finalization of internal controls to ensure model effectiveness.

Trustmark does not expect a material allowance for credit losses to be recorded on held-to-maturity securities under the CECL model due to the composition of the portfolio being primarily government agency-backed securities for which the risk of loss is minimal. Additionally, Trustmark does not expect a material allowance for credit losses to be recorded on available-for-sale debt securities, as the majority of the portfolio consists of government agency-backed securities for which the risk of loss is minimal.

~~Disclosures required by the amendments ASU 2016-13 will be presented beginning with the Quarterly Report on Form 10-Q for the period ending March 31, 2020.~~

~~Note 2 – Business Combinations~~

On April 7, 2017, Trustmark completed its merger with RB Bancorporation (Reliance), the holding company for Reliance Bank, which had 7 offices serving the Huntsville, Alabama metropolitan service area (MSA). Reliance Bank was merged into Trustmark National Bank simultaneously with the merger of Trustmark and Reliance. Under the terms of the Merger Agreement dated November 14, 2016, Trustmark paid $22.00 in cash for each share of Reliance common stock outstanding, which represented payment to Reliance common shareholders of approximately $23.7 million. In addition, Trustmark paid off Reliance Preferred Stock of $1.1 million bringing the total consideration paid to $24.8 million.

~~The merger with Reliance was consistent with Trustmark’s strategic plan to selectively expand the Trustmark franchise and enhance the Trustmark franchise in north Alabama.~~

This merger was accounted for in accordance with FASB ASC Topic 805, “Business Combinations.” Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the merger date.

~~The statement of assets purchased and liabilities assumed in the Reliance merger is presented below at their estimated fair values as of the merger date of April 7, 2017 ($ in thousands):~~

Assets:

Cash and due from banks

$
5,013

Federal funds sold and securities purchased under reverse repurchase agreements

6,900

Securities

54,843

Acquired loans

117,447

Premises and equipment, net

3,700

Identifiable intangible assets

1,850

Other real estate

475

Other assets

6,037

Total Assets

196,265

Liabilities:

Deposits

166,158

Other borrowings

17,469

Other liabilities

1,322

Total Liabilities

184,949

Net identified assets acquired at fair value

11,316

Goodwill

13,471

Total consideration paid

$
24,787

The excess of the consideration paid over the estimated fair value of the net assets acquired was $13.5 million, which was recorded as goodwill under FASB ASC Topic 805. The identifiable intangible assets acquired represent the core deposit intangible at fair value at the merger date. The core deposit intangible is being amortized on an accelerated basis over the estimated useful life, currently expected to be approximately ten years.

Loans acquired from Reliance were evaluated under a fair value process. Loans with evidence of deterioration in credit quality and for which it was probable at acquisition that Trustmark would not be able to collect all contractually required payments are referred to as acquired impaired loans and accounted for in accordance with FASB ASC Subtopic 310-30. See Note 6 – Acquired Loans for additional information on acquired loans.

The operations of Reliance are included in Trustmark’s operating results from April 7, 2017 and did not have a material impact on Trustmark’s results of operations. During the second quarter of 2017, Trustmark included merger transaction expenses in other noninterest expense totaling $3.2 million (change in control expense of $1.3 million; professional fees, contract termination and other expenses of $1.9 million).

~~Fair Value of Acquired Financial Instruments~~

For financial instruments measured at fair value, Trustmark utilized inputs within Level 2 of the fair value hierarchy to determine the fair value of securities available for sale (included in securities above), time deposits (included in deposits above) and FHLB advances (included in other borrowings above). Level 3 inputs were used to determine the fair value of acquired loans, identifiable intangible assets and other real estate. The methodology and significant assumptions used in estimating the fair values of these financial assets and liabilities are as follows:

~~Securities Available for Sale~~

Estimated fair values for securities available for sale are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments.

~~Acquired Loans~~

Fair value of acquired loans is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of default and current market rates.

~~Identifiable Intangible Assets~~

The fair value assigned to the identifiable intangible assets, in this case the core deposit intangible, represents the future economic benefits of the potential cost savings from acquiring core deposits in the merger compared to the cost of obtaining alternative funding from market sources.

~~Other Real Estate~~

~~Other real estate was initially recorded at its estimated fair value on the merger date based on independent appraisals less estimated selling costs.~~

~~Time Deposits~~

Time deposits were valued by projecting expected cash flows into the future based on each account’s contracted rate and then determining the present value of those expected cash flows using current rates for deposits with similar maturities.

~~FHLB Advances~~

FHLB advances were valued by projecting expected cash flows into the future based on each advance’s contracted rate and then determining the present value of those expected cash flows using current rates for advances with similar maturities.

~~Please refer to Note 20 – Fair Value for more information on Trustmark’s classification of financial instruments based on valuation inputs within the fair value hierarchy.~~

~~Note 3 – Cash and Due from Banks~~

Trustmark is required to maintain average reserve balances with the Federal Reserve Bank of Atlanta based on a percentage of deposits. The average amounts of those reserves for the years ended December 31, 2019 and 2018 were $122.4 million and $112.4 million, respectively.

~~Note 4 – Securities Available for Sale and Held to Maturity~~

~~The following tables are a summary of the amortized cost and estimated fair value of securities available for sale and held to maturity at December 31, 2019 and 2018 ($ in thousands):~~

Securities Available for Sale

Securities Held to Maturity

Gross

Gross

Estimated

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

Amortized

Unrealized

Unrealized

Fair

December 31, 2019

Cost

Gains

Losses

Value

Cost

Gains

Losses

Value

U.S. Government agency obligations

$
22,965

$
69

$
(707
)

$
22,327

$
3,781

$
220

$
—

$
4,001

Obligations of states and political
   subdivisions

24,952

513

—

25,465

31,781

434

(53
)

32,162

Mortgage-backed securities

Residential mortgage pass-through
   securities

Guaranteed by GNMA

69,196

425

(369
)

69,252

10,820

266

(10
)

11,076

Issued by FNMA and FHLMC

714,350

2,171

(3,165
)

713,356

96,631

286

(370
)

96,547

Other residential mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

656,162

3,777

(1,713
)

658,226

485,324

7,026

(656
)

491,694

Commercial mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

113,359

625

(206
)

113,778

109,762

1,042

(82
)

110,722

Total

$
1,600,984

$
7,580

$
(6,160
)

$
1,602,404

$
738,099

$
9,274

$
(1,171
)

$
746,202

December 31, 2018

U.S. Government agency obligations

$
31,235

$
109

$
(1,009
)

$
30,335

$
3,736

$
78

$
—

$
3,814

Obligations of states and political
   subdivisions

50,503

200

(27
)

50,676

35,783

255

(139
)

35,899

Mortgage-backed securities

Residential mortgage pass-through
   securities

Guaranteed by GNMA

69,648

147

(2,301
)

67,494

12,090

45

(257
)

11,878

Issued by FNMA and FHLMC

685,520

127

(18,963
)

666,684

115,133

43

(2,887
)

112,289

Other residential mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

830,129

67

(18,595
)

811,601

578,827

189

(15,441
)

563,575

Commercial mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

187,494

191

(2,662
)

185,023

164,074

299

(2,095
)

162,278

Total

$
1,854,529

$
841

$
(43,557
)

$
1,811,813

$
909,643

$
909

$
(20,819
)

$
889,733

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale to securities held to maturity. The securities were transferred at fair value, which became the cost basis for the securities held to maturity. At the date of transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million, net of tax). The net unrealized holding loss is amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of the transfer. At December 31, 2019 and 2018, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive loss in the accompanying balance sheet totaled approximately $12.1 million ($9.1 million, net of tax) and $15.7 million ($11.8 million, net of tax), respectively.

~~Temporarily Impaired Securities~~

~~The table below includes securities with gross unrealized losses segregated by length of impairment at December 31, 2019 and 2018 ($ in thousands):~~

Less than 12 Months

12 Months or More

Total

Gross

Gross

Gross

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

December 31, 2019

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

U.S. Government agency obligations

$
6,585

$
(105
)

$
12,886

$
(602
)

$
19,471

$
(707
)
Obligations of states and political subdivisions

—

—

6,216

(53
)

6,216

(53
)
Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

23,544

(107
)

18,529

(272
)

42,073

(379
)
Issued by FNMA and FHLMC

112,879

(230
)

278,120

(3,305
)

390,999

(3,535
)
Other residential mortgage-backed securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

158,341

(738
)

151,271

(1,631
)

309,612

(2,369
)
Commercial mortgage-backed securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

51,312

(167
)

14,155

(121
)

65,467

(288
)
Total

$
352,661

$
(1,347
)

$
481,177

$
(5,984
)

$
833,838

$
(7,331
)

December 31, 2018

U.S. Government agency obligations

$
—

$
—

$
25,045

$
(1,009
)

$
25,045

$
(1,009
)
Obligations of states and political subdivisions

4,954

(9
)

12,802

(157
)

17,756

(166
)
Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

9,163

(54
)

61,141

(2,504
)

70,304

(2,558
)
Issued by FNMA and FHLMC

31,931

(172
)

731,749

(21,678
)

763,680

(21,850
)
Other residential mortgage-backed securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

46,643

(110
)

1,296,221

(33,926
)

1,342,864

(34,036
)
Commercial mortgage-backed securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

5,497

(37
)

272,789

(4,720
)

278,286

(4,757
)
Total

$
98,188

$
(382
)

$
2,399,747

$
(63,994
)

$
2,497,935

$
(64,376
)

The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Because Trustmark does not intend to sell these securities and it is more likely than not that Trustmark will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Trustmark does not consider these investments to be other-than-temporarily impaired at December 31, 2019. There were 0 other-than-temporary impairments for the years ended December 31, 2019, 2018 and 2017.

~~Security Gains and Losses~~

~~For the periods presented, gross realized gains or losses as a result of calls and dispositions of securities, as well as any associated proceeds, were as follows ($ in thousands):~~

Years Ended December 31,

Available for Sale

2019

2018

2017

Proceeds from calls and sales of securities

$
—

$
—

$
27,682

Gross realized gains

—

—

16

Gross realized losses

—

—

(1
)

~~Securities Pledged~~

Securities with a carrying value of $1.770 billion and $2.144 billion at December 31, 2019 and 2018, respectively, were pledged to collateralize public deposits and securities sold under repurchase agreements and for other purposes as permitted by law. At both December 31, 2019 and 2018, NaN of these securities were pledged under the Federal Reserve Discount Window program to provide additional contingency funding capacity.

~~Contractual Maturities~~

The amortized cost and estimated fair value of securities available for sale and held to maturity at December 31, 2019, by contractual maturity, are shown below ($ in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Securities

Securities

Available for Sale

Held to Maturity

Amortized

Estimated

Amortized

Estimated

Cost

Fair Value

Cost

Fair Value

Due in one year or less

$
22,480

$
22,623

$
5,071

$
5,115

Due after one year through five years

1,598

1,614

30,491

31,048

Due after five years through ten years

2,561

2,513

—

—

Due after ten years

21,278

21,042

—

—

47,917

47,792

35,562

36,163

Mortgage-backed securities

1,553,067

1,554,612

702,537

710,039

Total

$
1,600,984

$
1,602,404

$
738,099

$
746,202

~~Note 5 – LHFI and Allowance for Loan Losses, LHFI~~

~~At December 31, 2019 and 2018, LHFI consisted of the following ($ in thousands):~~

December 31,

2019

2018

Loans secured by real estate:

Construction, land development and other land

$
1,162,791

$
1,056,601

Secured by 1-4 family residential properties

1,855,913

1,825,492

Secured by nonfarm, nonresidential properties

2,475,245

2,220,914

Other real estate secured

724,480

543,820

Commercial and industrial loans

1,477,896

1,538,715

Consumer loans

175,738

182,448

State and other political subdivision loans

967,944

973,818

Other loans

495,621

494,060

LHFI

9,335,628

8,835,868

Less allowance for loan losses, LHFI

84,277

79,290

Net LHFI

$
9,251,351

$
8,756,578

~~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, 2019, Trustmark’s geographic loan distribution was concentrated primarily in its 5 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, 2019 and 2018, loans to certain executive officers and directors, including their immediate families and companies in which they are principal owners, totaled $35.5 million and $49.0 million, respectively. During 2019, $464.6 million of new loan advances were made, while repayments were $478.1 million. There were 0 increases in loans due to changes in executive officers and directors.

~~Nonaccrual and Past Due LHFI~~

~~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, 2019.~~

~~The following tables provide an aging analysis of past due and nonaccrual LHFI by loan type at December 31, 2019 and 2018 ($ in thousands):~~

December 31, 2019

Past Due

90 Days

Current

30-59 Days

60-89 Days

or More (1)

Total

Nonaccrual

Loans

Total LHFI

Loans secured by real estate:

Construction, land development and
other land

$
380

$
256

$
—

$
636

$
897

$
1,161,258

$
1,162,791

Secured by 1-4 family residential properties

5,254

940

211

6,405

16,810

1,832,698

1,855,913

Secured by nonfarm, nonresidential
properties

1,698

—

—

1,698

7,700

2,465,847

2,475,245

Other real estate secured

8

—

—

8

1,032

723,440

724,480

Commercial and industrial loans

617

12

39

668

21,775

1,455,453

1,477,896

Consumer loans

2,208

380

392

2,980

108

172,650

175,738

State and other political subdivision loans

76

—

—

76

4,079

963,789

967,944

Other loans

152

4

—

156

825

494,640

495,621

Total

$
10,393

$
1,592

$
642

$
12,627

$
53,226

$
9,269,775

$
9,335,628

~~(1)~~

~~Past due 90 days or more but still accruing interest.~~

December 31, 2018

Past Due

90 Days

Current

30-59 Days

60-89 Days

or More (1)

Total

Nonaccrual

Loans

Total LHFI

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.~~

~~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 Subtopic 310-10-50-20 “Impaired Loans,” 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 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, 2019.~~

~~At December 31, 2019 and 2018, individually evaluated for impaired LHFI consisted of the following ($ in thousands):~~

December 31, 2019

LHFI

Unpaid

With No Related

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

$
926

$
610

$
16

$
626

$
—

$
1,089

Secured by 1-4 family residential properties

6,513

2,104

3,360

5,464

35

4,713

Secured by nonfarm, nonresidential properties

7,295

1,462

5,255

6,717

2,355

8,096

Other real estate secured

69

—

68

68

—

158

Commercial and industrial loans

27,178

19,374

4,084

23,458

707

27,088

Consumer loans

22

—

21

21

—

11

State and other political subdivision loans

4,079

—

4,079

4,079

1,809

6,337

Other loans

1,207

—

784

784

553

1,033

Total

$
47,289

$
23,550

$
17,667

$
41,217

$
5,459

$
48,525

December 31, 2018

LHFI

Unpaid

With No Related

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

~~Troubled Debt Restructurings~~

At December 31, 2019, 2018 and 2017, LHFI classified as TDRs totaled $31.5 million, $28.2 million and $23.9 million, respectively, and were primarily comprised of credits with interest-only payments for an extended period of time and credits renewed at a rate that was not commensurate with that of new debt with similar risk which totaled $20.8 million, $23.8 million and $20.5 million, respectively. The remaining TDRs at December 31, 2019, 2018 and 2017 resulted from bankruptcies or from payment or maturity extensions. Trustmark had $7.0 million of unused commitments on TDRs at December 31, 2019, compared to $4.4 million of unused commitments on TDRs at December 31, 2018 and 0 material unused commitments on TDRs at December 31, 2017.

For TDRs, Trustmark had a related loan loss allowance of $3.2 million at December 31, 2019, $2.3 million at December 31, 2018 and $458 thousand at December 31, 2017. 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 $1.6 million, $18.4 million and $127 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.

~~The following tables illustrate the impact of modifications classified as TDRs for the periods presented ($ in thousands):~~

Year Ended December 31, 2019

Modifications Classified as TDRs

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Loans secured by real estate:

Secured by 1-4 family residential properties

19

$
1,742

$
1,738

Secured by nonfarm, nonresidential properties

1

5,055

5,055

Commercial and industrial loans

8

9,167

9,054

Consumer loans

2

30

30

Total

30

$
15,994

$
15,877

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

~~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 periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

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

3

446

5

734

4

78

Commercial and industrial loans

7

192

6

15,178

3

9,526

Consumer loans

1

27

1

1

—

—

Total

11

$
665

13

$
15,935

7

$
9,604

~~The following tables detail LHFI classified as TDRs by loan type at December 31, 2019, 2018 and 2017 ($ in thousands):~~

December 31, 2019

Accruing

Nonaccrual

Total

Loans secured by real estate:

Construction, land development and other land

$
—

$
15

$
15

Secured by 1-4 family residential properties

77

3,865

3,942

Secured by nonfarm, nonresidential properties

—

5,176

5,176

Commercial and industrial loans

3,319

18,913

22,232

Consumer loans

—

21

21

Other loans

—

137

137

Total TDRs

$
3,396

$
28,127

$
31,523

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

~~Credit Quality Indicators~~

Trustmark’s loan portfolio credit quality indicators focus on 6 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:

•

~~100~~

•

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.

•

~~Commercial Credits~~

•

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.

•

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, commercial nonaccrual relationships of $500 thousand or more 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.

~~101~~

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 and commercial construction projects and an annual review of certain existing nonowner-occupied projects and multi-family projects is performed. The 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 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.

~~The tables below present LHFI by loan type and credit quality indicator at December 31, 2019 and 2018 ($ in thousands):~~

December 31, 2019

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

$
1,075,146

$
—

$
15,726

$
42

$
1,090,914

Secured by 1-4 family residential properties

116,592

45

6,355

41

123,033

Secured by nonfarm, nonresidential properties

2,430,761

—

44,001

328

2,475,090

Other real estate secured

721,238

—

2,547

—

723,785

Commercial and industrial loans

1,407,837

909

68,262

888

1,477,896

Consumer loans

—

—

—

—

—

State and other political subdivision loans

957,948

4,650

5,346

—

967,944

Other loans

469,095

3,445

16,926

30

489,496

Total

$
7,178,617

$
9,049

$
159,163

$
1,329

$
7,348,158

~~102~~

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

$
71,413

$
332

$
—

$
132

$
71,877

$
1,162,791

Secured by 1-4 family residential properties

1,710,930

5,922

211

15,817

1,732,880

1,855,913

Secured by nonfarm, nonresidential properties

155

—

—

—

155

2,475,245

Other real estate secured

695

—

—

—

695

724,480

Commercial and industrial loans

—

—

—

—

—

1,477,896

Consumer loans

172,649

2,588

393

108

175,738

175,738

State and other political subdivision loans

—

—

—

—

—

967,944

Other loans

6,125

—

—

—

6,125

495,621

Total

$
1,961,967

$
8,842

$
604

$
16,057

$
1,987,470

$
9,335,628

December 31, 2018

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

$
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

~~Past Due LHFS~~

~~LHFS past due 90 days or more totaled $41.6 million and $37.4 million at December 31, 2019 and 2018, respectively.~~

~~Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during 2019 or 2018.~~

~~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 9 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:

~~103~~

~~Commercial Purpose LHFI~~

•

~~Real Estate – Owner-Occupied~~

•

~~Real Estate – Nonowner-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 5 qualitative factors include the following:

~~104~~

•

~~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 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 5 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, 2019 and 2018 ($ in thousands):

December 31, 2019

Individually

Collectively

Total

Loans secured by real estate:

Construction, land development and other land

$
—

$
8,260

$
8,260

Secured by 1-4 family residential properties

35

8,897

8,932

Secured by nonfarm, nonresidential properties

2,355

23,803

26,158

Other real estate secured

—

4,024

4,024

Commercial and industrial loans

707

25,285

25,992

Consumer loans

—

3,379

3,379

State and other political subdivision loans

1,809

420

2,229

Other loans

553

4,750

5,303

Total allowance for loan losses, LHFI

$
5,459

$
78,818

$
84,277

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

~~105~~

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, 2019 and 2018 ($ in thousands):

December 31, 2019

LHFI Evaluated for Impairment

Individually

Collectively

Total

Loans secured by real estate:

Construction, land development and other land

$
626

$
1,162,165

$
1,162,791

Secured by 1-4 family residential properties

5,464

1,850,449

1,855,913

Secured by nonfarm, nonresidential properties

6,717

2,468,528

2,475,245

Other real estate secured

68

724,412

724,480

Commercial and industrial loans

23,458

1,454,438

1,477,896

Consumer loans

21

175,717

175,738

State and other political subdivision loans

4,079

963,865

967,944

Other loans

784

494,837

495,621

Total

$
41,217

$
9,294,411

$
9,335,628

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

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

Years Ended December 31,

2019

2018

2017

Balance at beginning of period

$
79,290

$
76,733

$
71,265

Transfers (1)

—

1,554

—

Loans charged-off

(14,481
)

(29,489
)

(21,147
)
Recoveries

8,671

12,499

11,521

Net (charge-offs) recoveries

(5,810
)

(16,990
)

(9,626
)
Provision for loan losses, LHFI

10,797

17,993

15,094

Balance at end of period

$
84,277

$
79,290

$
76,733

~~(1)~~

The allowance for loan losses balance related to the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions, which were transferred from acquired impaired loans to LHFI during 2018.

~~106~~

~~The following tables detail changes in the allowance for loan losses, LHFI by loan type for the years ended December 31, 2019 and 2018, respectively ($ in thousands):~~

2019

Balance
January 1,

Provision for
Loan Losses

Balance
December 31,

Charge-offs

Recoveries

Loans secured by real estate:

Construction, land development and other land

$
7,390

$
(40
)

$
894

$
16

$
8,260

Secured by 1-4 family residential properties

8,641

(531
)

666

156

8,932

Secured by nonfarm, nonresidential properties

22,376

(322
)

472

3,632

26,158

Other real estate secured

3,450

—

29

545

4,024

Commercial and industrial loans

27,359

(5,344
)

1,257

2,720

25,992

Consumer loans

2,890

(2,278
)

1,829

938

3,379

State and other political subdivision loans

990

—

—

1,239

2,229

Other loans

6,194

(5,966
)

3,524

1,551

5,303

Total allowance for loan losses, LHFI

$
79,290

$
(14,481
)

$
8,671

$
10,797

$
84,277

2018

Balance
January 1,

Provision for
Loan Losses

Balance
December 31,

Transfers (1)

Charge-offs

Recoveries

Loans secured by real estate:

Construction, land development and other land

$
7,865

$
584

$
(123
)

$
1,124

$
(2,060
)

$
7,390

Secured by 1-4 family residential properties

10,874

182

(1,629
)

646

(1,432
)

8,641

Secured by nonfarm, nonresidential properties

23,428

446

(1,184
)

133

(447
)

22,376

Other real estate secured

2,790

291

—

23

346

3,450

Commercial and industrial loans

22,851

46

(18,823
)

5,410

17,875

27,359

Consumer loans

3,470

5

(2,089
)

2,019

(515
)

2,890

State and other political subdivision loans

789

—

—

—

201

990

Other loans

4,666

—

(5,641
)

3,144

4,025

6,194

Total allowance for loan losses, LHFI

$
76,733

$
1,554

$
(29,489
)

$
12,499

$
17,993

$
79,290

~~(1)~~

~~Note 6 – Acquired Loans~~

~~Trustmark’s loss share agreement with the FDIC covering the acquired covered loans secured by 1-4 family residential properties will expire in 2021.~~

~~At December 31, 2019 and 2018, acquired loans consisted of the following ($ in thousands):~~

December 31,

2019

2018

Loans secured by real estate:

Construction, land development and other land

$
4,771

$
5,878

Secured by 1-4 family residential properties

17,525

22,556

Secured by nonfarm, nonresidential properties

38,206

47,979

Other real estate secured

3,946

8,253

Commercial and industrial loans

5,035

15,267

Consumer loans

520

1,356

Other loans

2,598

5,643

Acquired loans

72,601

106,932

Less allowance for loan losses, acquired loans

815

1,231

Net acquired loans

$
71,786

$
105,701

~~107~~

~~The following table presents changes in the net carrying value of the acquired loans for the periods presented ($ in thousands):~~

Acquired
Impaired

Acquired
Not ASC
310-30 (1)

Carrying value, net at January 1, 2018

$
179,570

$
77,868

Transfers (2)(3)

(26,497
)

(59,916
)
Accretion to interest income

9,514

1,019

Payments received, net

(62,519
)

(16,234
)
Other (4)

(26
)

74

Change in allowance for loan losses, acquired loans

2,848

—

Carrying value, net at December 31, 2018

102,890

2,811

Transfers (3)

—

(2,926
)
Accretion to interest income

5,532

115

Payments received, net

(37,230
)

—

Other (4)

178

—

Change in allowance for loan losses, acquired loans

416

—

Carrying value, net at December 31, 2019

$
71,786

$
—

~~(1)~~

~~“Acquired Not ASC 310-30” loans consist of loans that are not in scope for FASB ASC Subtopic 310-30.~~

~~(2)~~

~~During 2018, Trustmark transferred the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions from acquired impaired loans to LHFI.~~

~~(3)~~

~~“Acquired Not ASC 310-30” loans transferred to LHFI due to the discount on these loans being fully amortized.~~

~~(4)~~

~~Includes miscellaneous timing adjustments as well as acquired loan terminations through foreclosure, charge-off and other terminations.~~

Under FASB ASC Subtopic 310-30, the accretable yield is the excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable. The following table presents changes in the accretable yield for the periods presented ($ in thousands):

Years Ended December 31,

2019

2018

2017

Accretable yield at beginning of period

$
(17,722
)

$
(31,426
)

$
(38,918
)
Additions due to acquisition (1)

—

—

(784
)
Accretion to interest income

5,532

9,514

14,924

Disposals, net

2,072

3,926

2,868

Transfers (2)

—

5,874

—

Reclassification from nonaccretable difference (3)

(4,698
)

(5,610
)

(9,516
)
Accretable yield at end of period

$
(14,816
)

$
(17,722
)

$
(31,426
)

~~(1)~~

~~Accretable yield on loans acquired from Reliance on April 7, 2017.~~

~~(2)~~

~~During 2018, Trustmark transferred the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions from acquired impaired loans to LHFI.~~

~~(3)~~

~~Reclassifications from nonaccretable difference are due to lower loss expectations and improvements in expected cash flows.~~

~~The following tables present the components of the allowance for loan losses on acquired impaired loans for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Balance at beginning of period

$
1,231

$
4,079

$
11,397

Transfers (1)

—

(1,554
)

—

Provision for loan losses, acquired loans

42

(1,005
)

(7,395
)
Net (charge-offs) recoveries

(458
)

(289
)

77

Balance at end of period

$
815

$
1,231

$
4,079

~~(1)~~

~~108~~

As discussed in Note 5 - LHFI and Allowance for Loan Losses, LHFI, Trustmark has established a loan grading system that consists of 10 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 segregate the level of risk across the ten unique risk ratings. These credit quality measures are unique to commercial loans. Credit quality for consumer loans is based on individual credit scores, aging status of the loan and payment activity.

~~The tables below present the acquired loans by loan type and credit quality indicator at December 31, 2019 and 2018 ($ in thousands):~~

December 31, 2019

Commercial Loans

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

$
4,022

$
—

$
192

$
—

$
4,214

Secured by 1-4 family residential properties

3,164

42

580

—

3,786

Secured by nonfarm, nonresidential properties

27,848

—

9,972

386

38,206

Other real estate secured

3,878

—

68

—

3,946

Commercial and industrial loans

3,419

—

—

1,616

5,035

Consumer loans

—

—

—

—

—

Other loans

2,591

—

7

—

2,598

Total acquired loans

$
44,922

$
42

$
10,819

$
2,002

$
57,785

Consumer Loans

Past Due

Past Due

Total

Current

30-89 Days

90 Days or More

Nonaccrual (1)

Subtotal

Acquired Loans

Loans secured by real estate:

Construction, land development and other land

$
463

$
94

$
—

$
—

$
557

$
4,771

Secured by 1-4 family residential properties

12,843

615

281

—

13,739

17,525

Secured by nonfarm, nonresidential properties

—

—

—

—

—

38,206

Other real estate secured

—

—

—

—

—

3,946

Commercial and industrial loans

—

—

—

—

—

5,035

Consumer loans

489

31

—

—

520

520

Other loans

—

—

—

—

—

2,598

Total acquired loans

$
13,795

$
740

$
281

$
—

$
14,816

$
72,601

~~(1)~~

~~Acquired loans not accounted for under FASB ASC Subtopic 310-30.~~

December 31, 2018

Commercial Loans

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

$
4,923

$
26

$
278

$
—

$
5,227

Secured by 1-4 family residential properties

4,341

45

534

451

5,371

Secured by nonfarm, nonresidential properties

34,933

—

12,614

432

47,979

Other real estate secured

7,653

—

190

410

8,253

Commercial and industrial loans

6,560

—

6,942

1,765

15,267

Consumer loans

—

—

—

—

—

Other loans

4,027

—

1,616

—

5,643

Total acquired loans

$
62,437

$
71

$
22,174

$
3,058

$
87,740

~~109~~

Consumer Loans

Past Due

Past Due

Total

Current

30-89 Days

90 Days or More

Nonaccrual (1)

Subtotal

Acquired Loans

Loans secured by real estate:

Construction, land development and other land

$
642

$
5

$
4

$
—

$
651

$
5,878

Secured by 1-4 family residential properties

16,133

571

481

—

17,185

22,556

Secured by nonfarm, nonresidential properties

—

—

—

—

—

47,979

Other real estate secured

—

—

—

—

—

8,253

Commercial and industrial loans

—

—

—

—

—

15,267

Consumer loans

1,346

10

—

—

1,356

1,356

Other loans

—

—

—

—

—

5,643

Total acquired loans

$
18,121

$
586

$
485

$
—

$
19,192

$
106,932

~~(1)~~

~~Acquired loans not accounted for under FASB ASC Subtopic 310-30~~.

~~The following tables provide an aging analysis of contractually past due and nonaccrual acquired loans by loan type at December 31, 2019 and 2018 ($ in thousands):~~

December 31, 2019

Past Due

30-59 Days

60-89 Days

90 Days or More (1)

Total

Nonaccrual (2)

Current Loans

Total Acquired Loans

Loans secured by real estate:

Construction, land development and other
land

$
94

$
—

$
38

$
132

$
—

$
4,639

$
4,771

Secured by 1-4 family residential properties

696

131

366

1,193

—

16,332

17,525

Secured by nonfarm, nonresidential
properties

36

—

851

887

—

37,319

38,206

Other real estate secured

1

—

52

53

—

3,893

3,946

Commercial and industrial loans

—

—

—

—

—

5,035

5,035

Consumer loans

16

15

—

31

—

489

520

Other loans

—

—

—

—

—

2,598

2,598

Total acquired loans

$
843

$
146

$
1,307

$
2,296

$
—

$
70,305

$
72,601

~~(1)~~

~~Past due 90 days or more but still accruing interest.~~

~~(2)~~

~~Acquired loans not accounted for under FASB ASC Subtopic 310-30.~~

December 31, 2018

Past Due

30-59 Days

60-89 Days

90 Days or More (1)

Total

Nonaccrual (2)

Current Loans

Total Acquired Loans

Loans secured by real estate:

Construction, land development and other
land

$
5

$
—

$
87

$
92

$
—

$
5,786

$
5,878

Secured by 1-4 family residential properties

664

108

481

1,253

—

21,303

22,556

Secured by nonfarm, nonresidential
properties

206

—

978

1,184

—

46,795

47,979

Other real estate secured

2

14

—

16

—

8,237

8,253

Commercial and industrial loans

—

—

—

—

—

15,267

15,267

Consumer loans

1

9

—

10

—

1,346

1,356

Other loans

—

—

—

—

—

5,643

5,643

Total acquired loans

$
878

$
131

$
1,546

$
2,555

$
—

$
104,377

$
106,932

~~(1)~~

~~Past due 90 days or more but still accruing interest.~~

~~(2)~~

~~Acquired loans not accounted for under FASB ASC Subtopic 310-30.~~

~~110~~

~~Note 7 – Premises and Equipment, Net~~

~~At December 31, 2019 and 2018, premises and equipment, net consisted of the following ($ in thousands):~~

December 31,

2019

2018

Land

$
52,454

$
52,779

Buildings and leasehold improvements

210,362

202,912

Furniture and equipment

174,257

169,652

Total cost of premises and equipment

437,073

425,343

Less accumulated depreciation and amortization

256,608

247,160

Premises and equipment, net

180,465

178,183

Financing lease right-of-use assets

9,326

—

Assets held for sale

—

485

Total premises and equipment, net

$
189,791

$
178,668

At December 31, 2019, there were 0 closed branches in assets held for sale compared to 3 closed branches at December 31, 2018. These properties were transferred from premises and equipment, net to assets held for sale while Trustmark sold these properties as a result of its strategic branch initiatives. As a result, there were 0 property valuation adjustments for 2019 compared to $173 thousand and $338 thousand recognized and included in other expense for 2018 and 2017, respectively.

~~Depreciation and amortization of premises and equipment totaled $15.7 million in 2019 and $14.3 million in both 2018 and 2017.~~

~~Note 8 – Mortgage Banking~~

~~Mortgage Servicing Rights~~

~~The activity in the MSR is detailed in the table below for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

Balance at beginning of period

$
95,596

$
84,269

Origination of servicing assets

16,711

15,759

Change in fair value:

Due to market changes

(21,078
)

7,342

Due to runoff

(11,835
)

(11,774
)
Balance at end of period

$
79,394

$
95,596

Trustmark determines the fair value of the MSR using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. Trustmark considers the conditional prepayment rate (CPR), which is an estimated loan prepayment rate that uses historical prepayment rates for previous loans similar to the loans being evaluated, and the discount rate in determining the fair value of the MSR. An increase in either the CPR or discount rate assumption will result in a decrease in the fair value of the MSR, while a decrease in either assumption will result in an increase in the fair value of the MSR. At December 31, 2019, the fair value of the MSR included an assumed average prepayment speed of 11 CPR and an average discount rate of 10.03% compared to an assumed average prepayment speed of 8 CPR and an average discount rate of 10.04% at December 31, 2018. In recent years, there have been significant market-driven fluctuations in loan prepayment speeds and discount rates. These fluctuations can be rapid and may continue to be significant. Therefore, estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment.

~~Mortgage Loans Sold/Serviced~~

During 2019, 2018 and 2017, Trustmark sold $1.404 billion, $1.092 billion and $1.179 billion, respectively, of residential mortgage loans. Gain on sales of loans, net totaled $30.3 million in 2019, $21.8 million in 2018 and $18.8 million in 2017. Trustmark receives annual servicing fee income approximating 0.32% of the outstanding balance of the underlying loans, which totaled $22.6 million in 2019, $21.9 million in 2018 and $21.4 million in 2017. The gains on the sale of residential mortgage loans and the annual servicing fee are both recorded to noninterest income in mortgage banking, net in the accompanying consolidated statements of income. The investors and the securitization trusts have no recourse to the assets of Trustmark for failure of debtors to pay when due.

~~111~~

~~The table below details the mortgage loans sold and serviced for others at December 31, 2019 and 2018 ($ in thousands):~~

December 31,

2019

2018

Federal National Mortgage Association

$
4,411,914

$
4,204,336

Government National Mortgage Association

2,652,782

2,537,238

Federal Home Loan Mortgage Corporation

73,134

71,343

Other

19,404

21,957

Total mortgage loans sold and serviced for others

$
7,157,234

$
6,834,874

Trustmark is subject to losses in its loan servicing portfolio due to loan foreclosures. Trustmark has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold was in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation, loans that do not meet investor guidelines, loans in which the appraisal does not support the value and/or loans obtained through fraud by the borrowers or other third parties. Generally, putback requests may be made until the loan is paid in full. However, mortgage loans delivered to Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) on or after January 1, 2013 are subject to the Lending and Selling Representations and Warranties Framework updated in May 2014, which provides certain instances in which FNMA and FHLMC will not exercise their remedies, including a putback request, for breaches of certain selling representations and warranties, such as payment history and quality control review.

When a putback request is received, Trustmark evaluates the request and takes appropriate actions based on the nature of the request. Trustmark is required by FNMA and FHLMC to provide a response to putback requests within 60 days of the date of receipt. The total mortgage loan servicing putback expenses were included in other expense. At December 31, 2019 and 2018, Trustmark had a reserve for mortgage loan servicing putback expenses of $500 thousand and $1.0 million, respectively.

~~Note 9 – Goodwill and Identifiable Intangible Assets~~

~~Goodwill~~

~~The table below illustrates goodwill by segment for the years ended December 31, 2019 and 2018 ($ in thousands):~~

General

Banking

Insurance

Total

Balance as of January 1, 2018

$
334,603

$
45,024

$
379,627

Adjustment during 2018

—

—

—

Balance as of December 31, 2018

334,603

45,024

379,627

Adjustment during 2019

—

—

—

Balance as of December 31, 2019

$
334,603

$
45,024

$
379,627

~~Trustmark’s General Banking Segment delivers a full range of banking services to consumer, corporate, small and middle-market businesses through its extensive branch network.~~

The Insurance Segment includes TNB’s wholly-owned retail insurance subsidiary that offers a diverse mix of insurance products and services. Trustmark performed goodwill impairment tests for the General Banking and Insurance Segments during 2019, 2018 and 2017. Based on these tests, Trustmark concluded that the fair value of both the General Banking and Insurance Segments substantially exceeded the book value and 0 impairment charge was required.

~~112~~

~~Identifiable Intangible Assets~~

~~At December 31, 2019 and 2018, identifiable intangible assets consisted of the following ($ in thousands):~~

December 31, 2019

December 31, 2018

Gross Carrying

Accumulated

Net Carrying

Gross Carrying

Accumulated

Net Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

Core deposit intangibles

$
87,674

$
82,096

$
5,578

$
87,674

$
78,353

$
9,321

Insurance intangibles

14,171

12,655

1,516

13,824

12,348

1,476

Banking charters

1,325

1,076

249

1,325

1,010

315

Total

$
103,170

$
95,827

$
7,343

$
102,823

$
91,711

$
11,112

Trustmark recorded $4.1 million of amortization of identifiable intangible assets in 2019, $5.2 million in 2018 and $6.2 million in 2017. Trustmark estimates that amortization expense for identifiable intangible assets will be $2.8 million in 2020, $2.0 million in 2021, $1.2 million in 2022, $411 thousand in 2023 and $224 thousand in 2024. Trustmark continually evaluates whether events and circumstances have occurred that indicate that identifiable intangible assets have become impaired. Measurement of any impairment of such identifiable intangible assets is based on the fair values of those assets. There were 0 impairment losses on identifiable intangible assets recorded during 2019, 2018 or 2017.

~~The following table illustrates the carrying amounts and remaining weighted-average amortization periods of identifiable intangible assets as of December 31, 2019 ($ in thousands):~~

Remaining

Weighted-

Average

Net Carrying

Amortization

Amount

Period in Years

Core deposit intangibles

$
5,578

3.8

Insurance intangibles

1,516

12.9

Banking charters

249

3.7

Total

$
7,343

5.7

~~Note 10 – Other Real Estate~~

At December 31, 2019, Trustmark’s geographic other real estate distribution was concentrated primarily in its five key market regions: Alabama, Florida, Mississippi, Tennessee and Texas. The ultimate recovery of a substantial portion of the carrying amount of other real estate is susceptible to changes in market conditions in these areas.

~~For the periods presented, changes and gains (losses), net on other real estate were as follows ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Balance at beginning of period

$
34,668

$
43,228

$
62,051

Additions (1)

8,598

12,115

9,235

Disposals

(11,474
)

(19,802
)

(24,762
)
Write-downs

(2,544
)

(873
)

(3,296
)
Balance at end of period

$
29,248

$
34,668

$
43,228

Gain (losses), net on the sale of other real estate
included in other real estate expense

$
(291
)

$
700

$
2,087

~~(1)~~

~~For the year ended December 31, 2017, additions to other real estate included $475 thousand of other real estate acquired in the Reliance merger on April 7, 2017.~~

~~113~~

~~At December 31, 2019 and 2018, other real estate by type of property consisted of the following ($ in thousands):~~

December 31,

2019

2018

Construction, land development and other land properties

$
11,482

$
16,206

1-4 family residential properties

3,453

4,983

Nonfarm, nonresidential properties

14,313

13,296

Other real estate properties

—

183

Total other real estate

$
29,248

$
34,668

~~At December 31, 2019 and 2018, other real estate by geographic location consisted of the following ($ in thousands):~~

December 31,

2019

2018

Alabama

$
8,133

$
6,873

Florida

5,877

8,771

Mississippi (1)

14,919

17,255

Tennessee (2)

319

1,025

Texas

—

744

Total other real estate

$
29,248

$
34,668

~~(1)~~

~~Mississippi includes Central and Southern Mississippi Regions.~~

~~(2)~~

~~Tennessee includes Memphis, Tennessee and Northern Mississippi Regions.~~

At December 31, 2019 and 2018, the balance of other real estate included $3.5 million and $5.0 million, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of theproperty. At December 31, 2019 and 2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $953 thousand and $1.1 million, respectively.

~~Note 11 – Leases~~

~~The table below details the components of net lease cost for the period presented ($ in thousands):~~

Year Ended December 31, 2019

Finance leases

Amortization of right-of-use assets

$
2,162

Interest on lease liabilities

307

Operating lease cost

5,183

Short-term lease cost

370

Variable lease cost

1,387

Sublease income

(331
)
Net lease cost

$
9,078

~~The table below details the cash payments included in the measurement of lease liabilities during the period presented ($ in thousands):~~

Year Ended December 31, 2019

Finance leases

Operating cash flows included in operating activities

$
307

Financing cash flows included in payments under finance lease obligations

1,964

Operating leases

Operating cash flows (fixed payments) included in other operating activities, net

5,092

Operating cash flows (liability reduction) included in other operating activities, net

5,404

~~114~~

~~The table below details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at December 31, 2019 ($ in thousands):~~

December 31, 2019

Finance lease right-of-use assets, net of accumulated depreciation

$
9,326

Finance lease liabilities

9,520

Operating lease right-of-use assets

31,182

Operating lease liabilities

32,354

Weighted-average lease term

Finance leases

8.62 years

Operating leases

9.05 years

Weighted-average discount rate

Finance leases

3.01
%
Operating leases

3.51
%

~~At December 31, 2019, future minimum rental commitments under finance and operating leases were as follows ($ in thousands):~~

Finance Leases

Operating Leases

2020

$
1,970

$
4,916

2021

1,615

4,576

2022

1,556

4,101

2023

871

4,064

2024

572

3,968

Thereafter

4,451

16,349

Total minimum lease payments

11,035

37,974

Less imputed interest

(1,515
)

(5,620
)
Lease liabilities

$
9,520

$
32,354

~~Note 12 – Deposits~~

~~At December 31, 2019 and 2018, deposits consisted of the following ($ in thousands):~~

December 31,

2019

2018

Noninterest-bearing demand

$
2,891,215

$
2,937,594

Interest-bearing demand

3,125,914

2,633,259

Savings

3,590,509

3,905,659

Time

1,637,919

1,887,899

Total

$
11,245,557

$
11,364,411

~~Interest expense on deposits by type consisted of the following for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Interest-bearing demand

$
35,428

$
18,479

$
6,820

Savings

19,462

17,980

6,047

Time

24,281

17,477

9,850

Total

$
79,171

$
53,936

$
22,717

~~Time deposits that exceed the FDIC insurance limit of $250 thousand totaled $285.7 million and $406.6 million at December 31, 2019 and 2018, respectively.~~

~~115~~

~~The maturities of interest-bearing deposits at December 31, 2019, are as follows ($ in thousands):~~

2020

$
1,359,100

2021

190,554

2022

50,364

2023

20,995

2024

14,316

Thereafter

2,590

Total time deposits

1,637,919

Interest-bearing deposits with no stated maturity

6,716,423

Total interest-bearing deposits

$
8,354,342

~~Note 13 - Borrowings~~

~~Securities Sold Under Repurchase Agreements~~

Trustmark utilizes securities sold under repurchase agreements as a source of borrowing in connection with overnight repurchase agreements offered to commercial deposit customers by using its unencumbered investment securities as collateral. Trustmark accounts for its securities sold under repurchase agreements as secured borrowings in accordance with FASB ASC Subtopic 860-30, “Transfers and Servicing – Secured Borrowing and Collateral.” Securities sold under repurchase agreements are stated at the amount of cash received in connection with the transaction. Trustmark monitors collateral levels on a continual basis and may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under repurchase agreements are secured by securities with a carrying amount of $105.6 million and $163.3 million at December 31, 2019 and 2018, respectively. As of December 31, 2019, all repurchase agreements were short-term and consisted primarily of sweep repurchase arrangements, under which excess deposits are “swept” into overnight repurchase agreements with Trustmark. The following table presents the securities sold under repurchase agreements by collateral pledged at December 31, 2019 and 2018 ($ in thousands):

December 31,

2019

2018

Mortgage-backed securities

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

$
24,282

$
6,721

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

29,290

38,788

Total securities sold under repurchase agreements

$
53,572

$
45,509

~~Other Borrowings~~

~~At December 31, 2019 and 2018, other borrowings consisted of the following ($ in thousands):~~

December 31,

2019

2018

FHLB advances

$
811

$
879

Serviced GNMA loans eligible for repurchase

57,062

61,564

Finance lease liabilities

9,520

—

Other

18,003

17,442

Total other borrowings

$
85,396

$
79,885

~~FHLB Advances~~

At both December 31, 2019 and 2018, Trustmark had 0 outstanding short-term FHLB advances. At December 31, 2019 and 2018, Trustmark had $3.178 billion and $2.827 billion, respectively, available in additional borrowing capacity from the FHLB of Dallas.

~~Trustmark incurred 0 interest expense on short-term FHLB advances in 2019, compared to $4.4 million of interest expense in 2018 and $11.4 million in 2017.~~

~~At both December 31, 2019 and 2018, Trustmark had 0 outstanding long-term FHLB advances with the FHLB of Dallas.~~

~~116~~

At both December 31, 2019 and 2018, Trustmark had 2 outstanding long-term FHLB advances totaling $811 thousand and $879 thousand, respectively, with the FHLB of Atlanta. Both of these advances were assumed through the BancTrust merger. The advances outstanding had fixed interest rates of 0.08% and 0.75% with outstanding balances of $135 thousand and $676 thousand at December 31, 2019 and $153 thousand and $726 thousand at December 31, 2018. At December 31, 2019, these advances had a weighted-average remaining maturity of 2.37 years with a weighted-average cost of 0.64% during 2019. At December 31, 2018, the outstanding long-term advances had a weighted-average remaining maturity of 3.41 years with a weighted-average cost of 0.63% during 2018. There was 0 fair market value adjustment associated with the BancTrust merger included in the long-term FHLB advances at December 31, 2019 and 2018. Trustmark’s long-term FHLB advances are collateralized by securities held in safekeeping with the FHLB of Atlanta.

~~Trustmark incurred $5 thousand of interest expense on long-term FHLB advances in 2019, compared to $6 thousand of interest expense in 2018 and $566 thousand of interest expense in 2017.~~

~~Junior Subordinated Debt Securities~~

At December 31, 2019 and 2018, assets for the Trust totaled $61.9 million, resulting from the investment in junior subordinated debentures issued by Trustmark. Liabilities and shareholder’s equity for the Trust also totaled $61.9 million at December 31, 2019 and 2018, resulting from the issuance of trust preferred securities in the amount of $60.0 million as well as $1.9 million in common securities issued to Trustmark. During 2019, net income for the Trust equaled $79 thousand resulting from interest income from the junior subordinated debt securities issued by Trustmark to the Trust, compared with net income of $74 thousand during 2018 and $55 thousand during 2017. Dividends issued to Trustmark by the Trust during 2019 totaled $79 thousand, compared to $74 thousand during 2018 and $55 thousand during 2017.

~~117~~

~~Note 14 – Revenue from Contracts with Customers~~

~~The following table presents noninterest income disaggregated by reportable operating segment and revenue stream for the periods presented ($ in thousands):~~

Year Ended December 31, 2019

Year Ended December 31, 2018 (1)

Year Ended December 31, 2017 (1)(2)

Topic 606

Not Topic
606 (3)

Total

Topic 606

Not Topic
606 (3)

Total

Topic 606

Not Topic
606 (3)

Total

General Banking Segment

Service charges on deposit
   accounts

$
42,509

$
—

$
42,509

$
43,614

$
—

$
43,614

$
43,928

$
—

$
43,928

Bank card and other fees

27,972

3,706

31,678

26,904

1,897

28,801

27,958

250

28,208

Mortgage banking, net

—

29,822

29,822

—

34,674

34,674

—

29,902

29,902

Wealth management

379

—

379

296

—

296

210

—

210

Other, net

9,527

(160
)

9,367

6,762

(217
)

6,545

6,547

7,234

13,781

Security gains (losses), net

—

—

—

—

—

—

—

15

15

Total noninterest income

$
80,387

$
33,368

$
113,755

$
77,576

$
36,354

$
113,930

$
78,643

$
37,401

$
116,044

Wealth Management Segment

Service charges on deposit
   accounts

$
94

$
—

$
94

$
88

$
—

$
88

$
75

$
—

$
75

Bank card and other fees

58

—

58

104

—

104

78

—

78

Wealth management

30,300

—

30,300

30,042

—

30,042

30,130

—

30,130

Other, net

306

103

409

69

117

186

20

118

138

Total noninterest income

$
30,758

$
103

$
30,861

$
30,303

$
117

$
30,420

$
30,303

$
118

$
30,421

Insurance Segment

Insurance commissions

$
42,396

$
—

$
42,396

$
40,481

$
—

$
40,481

$
38,168

$
—

$
38,168

Other, net

33

—

33

5

—

5

30

—

30

Total noninterest income

$
42,429

$
—

$
42,429

$
40,486

$
—

$
40,486

$
38,198

$
—

$
38,198

Consolidated

Service charges on deposit
   accounts

$
42,603

$
—

$
42,603

$
43,702

$
—

$
43,702

$
44,003

$
—

$
44,003

Bank card and other fees

28,030

3,706

31,736

27,008

1,897

28,905

28,036

250

28,286

Mortgage banking, net

—

29,822

29,822

—

34,674

34,674

—

29,902

29,902

Insurance commissions

42,396

—

42,396

40,481

—

40,481

38,168

—

38,168

Wealth management

30,679

—

30,679

30,338

—

30,338

30,340

—

30,340

Other, net

9,866

(57
)

9,809

6,836

(100
)

6,736

6,597

7,352

13,949

Security gains (losses), net

—

—

—

—

—

—

—

15

15

Total noninterest income

$
153,574

$
33,471

$
187,045

$
148,365

$
36,471

$
184,836

$
147,144

$
37,519

$
184,663

~~(1)~~

During the first quarter of 2019, Trustmark revised the composition of its operating segments by moving the Private Banking Group from the General Banking Segment to the Wealth Management Segment as a result of a change in supervision of this group for segment reporting purposes. The prior period amounts presented include reclassifications to conform to the current period presentation.

~~(2)~~

~~Trustmark elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.~~

~~(3)~~

~~118~~

~~Note 15 – Income Taxes~~

~~The income tax provision included in the consolidated statements of income was as follows for the periods presented ($ in thousands):~~

Years Ended December 31,

2019

2018

2017

Current

Federal

$
20,068

$
4,532

$
16,959

State

7,145

5,997

5,687

Deferred

Federal

(3,104
)

9,392

7,280

State

(776
)

2,348

1,820

Income tax provision excluding deferred tax asset revaluation
and reversal of valuation allowance

23,333

22,269

31,746

Deferred tax expense (benefit) - re-measurement of deferred tax assets

—

—

25,619

Deferred tax expense (benefit) - reversal of valuation allowance

—

—

(8,650
)
Income tax provision

$
23,333

$
22,269

$
48,715

Trustmark maintained a valuation allowance for deferred tax assets of $8.7 million at December 31, 2016 that was related to unrealized built-in losses from a prior acquisition. Trustmark determined that based on the weight of the available evidence that it is more likely than not that all deferred tax assets will be realized as of December 31, 2017. Therefore, the valuation allowance was reversed as of December 31, 2017, resulting in a decrease of $8.7 million to income tax expense for the year.

The re-measurement of the deferred tax assets and liabilities during 2017 resulted from the enactment of the Tax Reform Act, which was signed into law on December 22, 2017. Under the Tax Reform Act, corporate statutory income tax rates were reduced from 35.0% to 21.0% effective January 1, 2018. Trustmark re-measured its deferred tax assets and liabilities to reflect the future realization of these assets and liabilities at the lower tax rate. This re-measurement resulted in an increase to tax expense and a decrease to the net deferred tax asset of $25.6 million for the year ended December 31, 2017.

Years Ended December 31,

2019

2018

2017

Income tax computed at statutory tax rate

$
36,497

$
36,089

$
54,021

Tax exempt interest

(4,951
)

(4,533
)

(7,611
)
Nondeductible interest expense

564

416

407

State income taxes, net

5,645

4,738

3,697

Income tax credits, net

(13,473
)

(15,404
)

(15,793
)
Death benefit gains

(123
)

(268
)

(3,268
)
Reversal of valuation allowance

—

—

(8,650
)
Re-measurement of deferred tax assets

—

—

25,619

Other

(826
)

1,231

293

Income tax provision

$
23,333

$
22,269

$
48,715

~~119~~

Temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities gave rise to the following net deferred tax assets at December 31, 2019 and 2018, which are included in other assets on the accompanying consolidated balance sheets ($ in thousands):

December 31,

2019

2018

Deferred tax assets:

Loan purchase accounting

$
845

$
1,564

Other real estate

5,845

7,284

Allowance for loan losses

21,774

20,638

Deferred compensation

16,498

15,607

Financing and operating lease liabilities

10,469

—

Realized built-in losses

11,431

12,182

Securities

3,028

3,929

Pension and other postretirement benefit plans

5,194

4,108

Interest on nonaccrual loans

942

806

Unrealized losses on securities available for sale

—

10,679

Stock-based compensation

2,527

2,192

Federal carryovers

—

1,606

Other

8,790

9,179

Gross deferred tax asset

87,343

89,774

Deferred tax liabilities:

Goodwill and other identifiable intangibles

15,336

16,229

Premises and equipment

11,913

12,109

Financing and operating lease right-of-use assets

10,127

—

Mortgage servicing rights

11,002

14,415

Securities

2,115

1,519

Other

5,192

5,600

Gross deferred tax liability

55,685

49,872

Net deferred tax asset

$
31,658

$
39,902

The following table provides a summary of the changes during the 2019 calendar year in the amount of unrecognized tax benefits that are included in other liabilities in the consolidated balance sheet ($ in thousands):

Balance at January 1, 2019

$
1,249

Change due to tax positions taken during the current year

279

Change due to tax positions taken during a prior year

134

Change due to the lapse of applicable statute of limitations during the current year

(138
)
Change due to settlements with taxing authorities during the current year

—

Balance at December 31, 2019

$
1,524

Accrued interest, net of federal benefit, at December 31, 2019

$
271

Unrecognized tax benefits that would impact the effective
tax rate, if recognized, at December 31, 2019

$
1,218

Interest and penalties related to unrecognized tax benefits, if any, are recorded in income tax expense. With limited exception, Trustmark is no longer subject to U.S. federal, state and local audits by tax authorities for 2013 and earlier tax years. Trustmark does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

~~120~~

~~Note 16 – Defined Benefit and Other Postretirement Benefits~~

~~Qualified Pension Plans~~

~~Trustmark Capital Accumulation Plan~~

Trustmark maintained a noncontributory tax-qualified defined benefit pension plan titled the Trustmark Capital Accumulation Plan (the Plan) in which substantially all associates who began employment prior to 2007 participated. The Plan provided for retirement benefits based on the length of credited service and final average compensation, as defined in the Plan, which vested upon three years of service. Benefit accruals under the Plan were frozen in 2009, with the exception of benefit accruals for certain employees of acquired financial institutions covered through plans that were subsequently merged into the Plan. Other than certain employees of acquired financial institutions, associates have not earned additional benefits, except for interest as required by law, since the Plan was frozen. Current and former associates who participated in the Plan retained their right to receive benefits that accrued before the Plan was frozen. As previously reported, on July 26, 2016 the Board of Directors of Trustmark authorized the termination of the Plan, effective as of December 31, 2016. As a result of the termination of the Plan, each participant became fully vested in their accrued benefits under the Plan.

During the second quarter of 2017, Trustmark fully funded the Plan on a termination basis by contributing additional assets in the amount of $17.6 million in accordance with Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation requirements. Participants in the Plan elected to receive either a lump sum cash payment or annuity payments under a group annuity contract purchased from an insurance carrier. Final distributions were made to participants from the Plan assets and a one-time pension settlement expense was recognized totaling $17.6 million.

~~Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions~~

To satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions and subsequently merged into the Plan (collectively, the Continuing Associates), on July 26, 2016, the Board of Directors of Trustmark also approved the spin-off of the portion of the Plan associated with the accrued benefits of the Continuing Associates into a new plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the Continuing Plan), effective as of December 30, 2016, immediately prior to the termination of the Plan.

December 31,

2019

2018

Change in benefit obligation:

Benefit obligation, beginning of year

$
9,179

$
10,102

Service cost

211

277

Interest cost

361

332

Actuarial (gain) loss

875

(827
)
Benefits paid

(1,566
)

(705
)
Benefit obligation, end of year

$
9,060

$
9,179

Change in plan assets:

Fair value of plan assets, beginning of year

$
3,954

$
4,596

Actual return on plan assets

668

(314
)
Employer contributions

387

377

Benefit payments

(1,566
)

(705
)
Fair value of plan assets, end of year

$
3,443

$
3,954

Funded status at end of year - net liability

$
(5,617
)

$
(5,225
)

Amounts recognized in accumulated other comprehensive loss:

Net loss - amount recognized

$
1,893

$
2,170

~~121~~

Years Ended December 31,

2019

2018

2017

Net periodic benefit cost:

Service cost

$
211

$
277

$
253

Interest cost

361

332

1,461

Expected return on plan assets

(202
)

(227
)

(317
)
Recognized net loss due to defined benefit plan termination

—

—

17,662

Recognized net loss due to lump sum settlements

312

161

—

Recognized net actuarial loss

373

571

1,414

Net periodic benefit cost

$
1,055

$
1,114

$
20,473

Other changes in plan assets and benefit obligation recognized in other
comprehensive income (loss), before taxes:

Net loss - Total recognized in other comprehensive income (loss)

$
(277
)

$
(1,017
)

$
(18,168
)
Total recognized in net periodic benefit cost and other comprehensive
income (loss)

$
778

$
97

$
2,305

Weighted-average assumptions as of end of year:

Discount rate for benefit obligation

2.84
%

3.97
%

3.32
%
Discount rate for net periodic benefit cost

3.97
%

3.32
%

3.71
%
Expected long-term return on plan assets

5.00
%

5.00
%

5.00
%

~~Plan Assets~~

~~The weighted-average asset allocations by asset category are presented below for the Continuing Plan at December 31, 2019 and 2018.~~

December 31,

2019

2018

Money market fund

2.0
%

8.0
%
Exchange traded funds:

Equity securities

46.0
%

52.0
%
Fixed income

41.0
%

29.0
%
International

11.0
%

11.0
%
Total

100.0
%

100.0
%

~~Fair Value Measurements~~

~~122~~

~~The following table sets forth by level, within the fair value hierarchy, the Continuing Plan’s assets measured at fair value at December 31, 2019 and 2018 ($ in thousands):~~

December 31, 2019

Total

Level 1

Level 2

Level 3

Money market fund

$
51

$
51

$
—

$
—

Exchange traded funds:

Equity securities

1,592

1,592

—

—

Fixed income

1,417

1,417

—

—

International

383

383

—

—

Total assets at fair value

$
3,443

$
3,443

$
—

$
—

December 31, 2018

Total

Level 1

Level 2

Level 3

Money market fund

$
304

$
304

$
—

$
—

Exchange traded funds:

Equity securities

2,044

2,044

—

—

Fixed income

1,162

1,162

—

—

International

444

444

—

—

Total assets at fair value

$
3,954

$
3,954

$
—

$
—

~~There have been no changes in the methodologies used in estimating the fair value of plan assets at December 31, 2019. The money market fund approximates fair value due to its immediate maturity.~~

~~Contributions~~

The range of potential contributions to the Continuing Plan is determined annually by the Continuing Plan’s actuary in accordance with applicable IRS rules and regulations. Trustmark’s policy is to fund amounts that are sufficient to satisfy the annual minimum funding requirements and do not exceed the maximum that is deductible for federal income tax purposes. The actual amount of the contribution is determined annually based on the Continuing Plan’s funded status and return on plan assets as of the measurement date, which is December 31. For the plan year ending December 31, 2019, Trustmark’s minimum required contribution to the Continuing Plan was $157 thousand; however, Trustmark contributed $285 thousand. For the plan year ending December 31, 2020, Trustmark’s minimum required contribution to the Continuing Plan is expected to be $175 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout 2020 to determine any additional funding requirements by the plan’s measurement date.

~~Estimated Future Benefit Payments and Other Disclosures~~

~~The following table presents the expected benefit payments, which reflect expected future service, for the Continuing Plan ($ in thousands):~~

Year

Amount

2020

$
1,147

2021

1,056

2022

873

2023

1,220

2024

997

2025 - 2029

2,443

~~Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2020 include a net loss of $324 thousand.~~

~~123~~

~~Supplemental Retirement Plans~~

Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of small nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger date.

The following tables present information regarding the benefit obligation, plan assets, funded status, amounts recognized in accumulated other comprehensive loss, net periodic benefit cost and other statistical disclosures for Trustmark’s nonqualified supplemental retirement plans for the periods presented ($ in thousands):

December 31,

2019

2018

Change in benefit obligation:

Benefit obligation, beginning of year

$
53,257

$
57,930

Service cost

109

116

Interest cost

2,044

1,865

Actuarial (gain) loss

5,498

(3,228
)
Benefits paid

(3,426
)

(3,426
)
Benefit obligation, end of year

$
57,482

$
53,257

Change in plan assets:

Fair value of plan assets, beginning of year

$
—

$
—

Employer contributions

3,426

3,426

Benefit payments

(3,426
)

(3,426
)
Fair value of plan assets, end of year

$
—

$
—

Funded status at end of year - net liability

$
(57,482
)

$
(53,257
)

Amounts recognized in accumulated other comprehensive loss:

Net loss

$
18,275

$
13,403

Prior service cost

609

859

Amounts recognized

$
18,884

$
14,262

Years Ended December 31,

2019

2018

2017

Net periodic benefit cost:

Service cost

$
109

$
116

$
141

Interest cost

2,044

1,865

2,103

Amortization of prior service cost

250

250

250

Recognized net actuarial loss

627

884

866

Net periodic benefit cost

$
3,030

$
3,115

$
3,360

Other changes in plan assets and benefit obligation recognized in other
comprehensive income (loss), before taxes:

Net (gain) loss

$
4,872

$
(4,111
)

$
(224
)
Amortization of prior service cost

(250
)

(250
)

(250
)
Total recognized in other comprehensive income (loss)

$
4,622

$
(4,361
)

$
(474
)
Total recognized in net periodic benefit cost and other comprehensive
income (loss)

$
7,652

$
(1,246
)

$
2,886

Weighted-average assumptions as of end of year:

Discount rate for benefit obligation

2.84
%

3.97
%

3.32
%
Discount rate for net periodic benefit cost

3.97
%

3.32
%

3.71
%

~~124~~

~~Estimated Supplemental Retirement Plan Payments and Other Disclosures~~

~~The following table presents the expected benefits payments for Trustmark’s supplemental retirement plans ($ in thousands):~~

Year

Amount

2020

$
3,963

2021

4,051

2022

4,284

2023

4,124

2024

4,144

2025 - 2029

17,840

Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2020 include a loss of $957 thousand and prior service cost of $149 thousand.

~~Other Benefit Plans~~

~~Defined Contribution Plan~~

Trustmark provides associates with a self-directed 401(k) retirement plan that allows associates to contribute a percentage of base pay, within limits provided by the Internal Revenue Code and accompanying regulations, into the plan. Trustmark matches 100% of associate contributions to the plan based on the amount of each participant’s contributions up to a maximum of 6% of eligible compensation. Associates may become eligible to make elective deferral contributions the first of the month following 30 days of employment. Eligible associates must complete one year of service in order to vest in Trustmark’s matching contributions. Trustmark’s contributions to this plan were $8.2 million in 2019, $7.9 million in 2018 and $7.5 million in 2017.

~~Note 17 – Stock and Incentive Compensation Plans~~

Trustmark has granted stock and incentive compensation awards subject to the provisions of the Stock and Incentive Compensation Plan (the Stock Plan). Current outstanding and future grants of stock and incentive compensation awards are subject to the provisions of the Stock Plan, which is designed to provide flexibility to Trustmark regarding its ability to motivate, attract and retain the services of key associates and directors. The Stock Plan also allows Trustmark to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance units to key associates and directors. At December 31, 2019, the maximum number of shares of Trustmark’s common stock available for issuance under the Stock Plan was 909,818 shares.

~~Restricted Stock Grants~~

~~Performance Awards~~

~~The following table summarizes Trustmark’s performance award activity for the periods presented:~~

Years Ended December 31,

2019

2018

2017

Weighted-

Weighted-

Weighted-

Average

Average

Average

Grant-Date

Grant-Date

Grant-Date

Shares

Fair Value

Shares

Fair Value

Shares

Fair Value

Nonvested shares, beginning of year

177,695

$
27.10

213,516

$
25.37

237,136

$
26.27

Granted

50,862

33.44

51,174

31.88

58,406

33.31

Released from restriction

(61,347
)

20.18

(55,351
)

25.32

(67,279
)

34.78

Forfeited

(17,296
)

20.18

(31,644
)

26.26

(14,747
)

28.42

Nonvested shares, end of year

149,914

$
32.88

177,695

$
27.10

213,516

$
25.37

~~125~~

~~Time-Vested Awards~~

Trustmark’s time-vested awards vest over three years and are granted to members of Trustmark’s Board of Directors as well as Trustmark’s executive and senior management teams. Time-vested awards are valued utilizing the fair value of Trustmark’s stock at the grant date. These awards are recognized on the straight-line method over the requisite service period.

~~The following table summarizes Trustmark’s time-vested award activity for the periods presented:~~

Years Ended December 31,

2019

2018

2017

Weighted-

Weighted-

Weighted-

Average

Average

Average

Grant-Date

Grant-Date

Grant-Date

Shares

Fair Value

Shares

Fair Value

Shares

Fair Value

Nonvested shares, beginning of year

321,870

$
28.48

320,357

$
25.40

322,056

$
22.65

Granted

113,673

33.42

118,325

31.96

105,524

33.79

Released from restriction

(124,598
)

21.64

(107,180
)

23.02

(101,289
)

25.35

Forfeited

(10,939
)

32.73

(9,632
)

29.30

(5,934
)

26.52

Nonvested shares, end of year

300,006

$
33.04

321,870

$
28.48

320,357

$
25.40

~~The following table presents information regarding compensation expense for awards under the Stock Plan for the periods presented ($ in thousands):~~

At December 31, 2019

Recognized Compensation Expense

Unrecognized

Weighted Average

for Years Ended December 31,

Compensation

Life of Unrecognized

2019

2018

2017

Expense

Compensation Expense

Performance awards

$
1,524

$
861

$
1,387

$
1,914

1.59

Time-vested awards

3,263

3,009

2,922

3,726

1.73

Total

$
4,787

$
3,870

$
4,309

$
5,640

~~Note 18 – Commitments and Contingencies~~

~~Lending Related~~

Letters of credit are conditional commitments issued by Trustmark to insure the performance of a customer to a third-party. A financial standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument. A performance standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to perform some contractual, nonfinancial obligation. When issuing letters of credit, Trustmark uses the same policies regarding credit risk and collateral which are followed in the lending process. At December 31, 2019 and 2018, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the other party for letters of credit was $105.2 million and $100.2 million, respectively. These amounts consist primarily of commitments with maturities of less than three years, which have an immaterial carrying value. Trustmark holds collateral to support standby letters of credit when deemed necessary. As of December 31, 2019 and 2018, the fair value of collateral held was $26.3 million and $29.8 million, respectively.

~~126~~

~~Legal Proceedings~~

~~Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in several lawsuits related to the collapse of the Stanford Financial Group.~~

On August 23, 2009, a purported class action complaint was filed in the District Court of Harris County, Texas, by Peggy Roif Rotstain, Guthrie Abbott, Catherine Burnell, Steven Queyrouze, Jaime Alexis Arroyo Bornstein and Juan C. Olano (collectively, Class Plaintiffs), on behalf of themselves and all others similarly situated, naming TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as defendants. The complaint seeks to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees and other monies received by each defendant from entities controlled by R. Allen Stanford (collectively, the Stanford Financial Group) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud on the asserted grounds that defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme. Class Plaintiffs have demanded a jury trial. Class Plaintiffs did not quantify damages.

In November 2009, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. In May 2010, all defendants (including TNB) filed motions to dismiss the lawsuit. In August 2010, the court authorized and approved the formation of an Official Stanford Investors Committee (OSIC) to represent the interests of Stanford investors and, under certain circumstances, to file legal actions for the benefit of Stanford investors. In December 2011, the OSIC filed a motion to intervene in this action. In September 2012, the district court referred the case to a magistrate judge for hearing and determination of certain pretrial issues. In December 2012, the court granted the OSIC’s motion to intervene, and the OSIC filed an Intervenor Complaint against one of the other defendant financial institutions. In February 2013, the OSIC filed a second Intervenor Complaint that asserts claims against TNB and the remaining defendant financial institutions. The OSIC seeks to recover: (i) alleged fraudulent transfers in the amount of the fees each of the defendants allegedly received from Stanford Financial Group, the profits each of the defendants allegedly made from Stanford Financial Group deposits, and other monies each of the defendants allegedly received from Stanford Financial Group; (ii) damages attributable to alleged conspiracies by each of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud and conversion on the asserted grounds that the defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme; and (iii) punitive damages. The OSIC did not quantify damages.

~~127~~

other damages) under various theories and causes of action, including negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, detrimental reliance, conspiracy, and violation of Louisiana’s uniform fiduciary, securities, and racketeering laws. The complaint does not quantify the amount of money the plaintiffs seek to recover. In January 2010, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. On March 29, 2010, the court stayed the case. TNB filed a motion to lift the stay, which was denied on February 28, 2012. In September 2012, the district court referred the case to a magistrate judge for hearing and determination of certain pretrial issues.

On April 11, 2016, Trustmark learned that a different Stanford-related lawsuit had been filed on that date in the Superior Court of Justice in Ontario, Canada, by The Toronto-Dominion Bank ~~(“TD Bank”)~~(TD Bank), naming TNB and three other financial institutions not affiliated with Trustmark as ~~defendants.~~defendants (the TD Bank Declaratory Action). The complaint seeks a declaration specifying the degree to which each of TNB and the other defendants are liable in respect of any loss and damage for which TD Bank is found to be liable in aseparate litigation commenced against TD Bank brought by the ~~Joint Liquidators~~joint liquidators of Stanford International Bank Limited in the Superior Court of Justice, Commercial List in Ontario, Canada (the ~~“Joint~~Joint Liquidators’ ~~Action”)~~Action), as well as contribution and indemnity in respect of any judgment, interest and costs TD Bank is ordered to pay in the Joint Liquidators’ Action. ~~To date,~~Trustmark understands that on or about June 8, 2021, after an extensive trial on the merits, the judge in the Joint Liquidators’ Action ruled in favor of TD Bank and found TD Bank not liable as to the claims asserted against the bank by the joint liquidators of Stanford International Bank Limited. The plaintiffs in the Joint Liquidators’ Action appealed this decision. On November 17, 2022, the intermediate appellate court in Canada dismissed the appeal. On January 16, 2023, the plaintiffs in the Joint Liquidators’ Action asked the Supreme Court of Canada for leave to appeal. TNB ~~has not been~~was never served in connection with ~~this~~the TD Bank Declaratory Action (including any of the recent appeals), and thus has not made an appearance in that action.

On November 1, 2019, TNB was named as a defendant in a complaint filed by Paul Blaine Smith, Carolyn Bass Smith and other plaintiffs identified therein (the Smith ~~Complaint)~~Action and, collectively with the Rotstain Action and the Jackson Action, the Actions). The Smith ~~Complaint~~Action was filed in ~~District~~Texas state court (District Court, Harris County, ~~Texas~~Texas) and named TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as defendants. The Smith ~~Complaint~~Action relates to the collapse of the Stanford Financial Group, as does the other pending litigation relating to Stanford summarized above. Plaintiffs in the Smith ~~Complaint have~~Action demanded a jury trial. On January 15, 2020, the court granted Stanford Financial Group receiver’s motion to stay the Texas state court action. On February 26, 2020, the lawsuit was removed to federal court in the Southern District of Texas by TNB.

~~Trustmark has only recently become aware~~On December 31, 2022, TNB agreed to a settlement in principle (the Settlement) relating to litigation involving the Stanford Financial Group. On January 13, 2023, TNB entered into a Settlement Agreement (the Settlement Agreement) reflecting the terms of the Settlement. The parties to the Settlement Agreement are, on the one hand, (i) Ralph S. Janvey, solely in his capacity as the court-appointed receiver (the Receiver) for the Stanford Receivership Estate; (ii) the Official Stanford Investors Committee; (iii) each of the plaintiffs in the Rotstain and Smith ~~Complaint (which has~~Actions; and, on the other hand, (iv) Trustmark. Under the terms of the Settlement Agreement, the parties have agreed to settle and dismiss the Rotstain Action, and the Smith Action, and all current or future claims by plaintiffs in either such Action arising from or related to Stanford. In addition, the Settlement Agreement provides that the parties will request dismissal of the Jackson Action pursuant to the terms of the bar orders described below. If the Settlement Agreement, including the bar orders described below, is approved by the Court and is not ~~yet been served upon TNB).~~subject to further appeal, Trustmark will make a one-time cash payment of $100.0 million to the Receiver.

The Settlement Agreement includes the parties’ agreement to seek the Northern District of Texas District Court’s entry of bar orders prohibiting any continued or future claims by the plaintiffs in the Actions or by any other person or entity against Trustmark and its ~~counsel are carefully evaluating~~related parties relating to Stanford, whether asserted to date or not. The bar orders therefore would prohibit all litigation relating to Stanford described herein, including not only the ~~Smith Complaint~~Actions and any pending matters but also any actions that may be brought in the ~~form that~~future. Final Court approval of these bar orders is ~~publicly available,~~a condition of the Settlement.

The Settlement Agreement is also subject to notice to Stanford’s investor claimants and ~~will update~~final, non-appealable approval by the ~~foregoing description~~U.S. District Court for the Northern District of Texas. The timing of any final decision by the Court is subject to the ~~extent~~discretion of the Court and any appeal thereof. While Trustmark believes that ~~additional material facts are ascertained.~~the Settlement Agreement is consistent with the terms of prior Stanford-related settlements that have been approved by the Court and were not successfully appealed, it is possible that the Court may decide not to approve the Settlement Agreement or that the Court’s approval of the settlement and its entry of the bar orders may not be upheld on appeal.

~~TNB’s~~The Settlement Agreement provides that Trustmark denies and makes no admission of liability or wrongdoing in connection with any Stanford matter. As has been the case throughout the pendency of the Actions, Trustmark expressly denies any liability or wrongdoing with respect to any matter alleged in regard of the multi-billion-dollar Ponzi scheme operated by Stanford for almost 20 years. Trustmark’s relationship with ~~the~~ Stanford ~~Financial Group~~ began as a result of Trustmark’s acquisition of a Houston-based bank in August 2006, and consisted of ~~correspondent banking and other traditional~~ordinary banking services provided to business deposit customers.

The foregoing description of the Settlement Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Settlement Agreement, a copy of which is filed as Exhibit 10.ai hereto and is incorporated herein by reference.

131

On January 20, 2023, the U.S. District Court for the Northern District of Texas entered an order preliminarily finding that the Settlement is fair, reasonable, and equitable; has no obvious deficiencies; and is the product of serious, informed, good faith, and arm’s-length negotiations. The Court reserved a final ruling with respect to the terms of the Settlement until after a Final Approval Hearing is held. That Final Approval Hearing is scheduled for May 3, 2023, and will be held before Judge David C. Godbey of the District Court for the Northern District of Texas. On February 14, 2023, Judge Hoyt entered an order staying the pre-trial deadlines and the February 27, 2023 trial date with respect to Trustmark in the ~~ordinary course~~Rotstain Action pending final Court approval of ~~business. All Stanford-related lawsuits~~the Settlement Agreement and pending entry of the bar orders. The Smith and Jackson Actions are ~~in pre-trial stages.~~currently stayed.

On December 30, 2019, a complaint was filed in the United States District Court for the Southern District of Mississippi, Northern Division ~~(the Court)~~ by Alysson Mills in her capacity as Court-appointed Receiver (the Adams Receiver) for Arthur Lamar Adams (Adams) and Madison Timber Properties, LLC (Madison Timber), naming TNB, two other Mississippi-based financial institutions both of which are unaffiliated with Trustmark and two individuals, one of who was employed by TNB at all times relevant to the complaint and the other was employed either by TNB or one of the other defendant financial institutions, as defendants. The complaint seeks to recover from the defendants, for the benefit of the receivership estate and also for certain investors who were allegedly defrauded by Adams and Madison Timber, damages (including punitive damages) and related costs allegedly attributable to actions of the defendants that allegedly enabled illegal and fraudulent activities engaged in by Adams and Madison Timber. The Adams Receiver did not quantify damages. By order issued by the court on September 30, 2021, the action to which TNB is a party was consolidated with three other pending cases for purposes of discovery, based upon a finding by the court that the actions involve overlapping questions of law and fact.

TNB’s relationship with Adams and Madison Timber consisted of traditional banking services in the ordinary course of business.

All pending legal proceedings described above are being vigorously ~~contested.~~contested, with the exception of the TD Bank Declaratory Action that, as noted above, Trustmark was not served in connection with. In accordance FASB ASC Subtopic 450-20, “Loss Contingencies,” Trustmark will establish an accrued liability for any litigation ~~matters~~matter if and when ~~those matters present~~such matter presents loss contingencies that are both probable and reasonably estimable. As a result of the entry into the Settlement as described above, Trustmark recognized a $100.0 million litigation settlement expense included in noninterest expense related to the Stanford litigation during the fourth quarter of 2022, plus an additional $750 thousand in related legal fees. Trustmark expects that the Settlement will be tax deductible. Trustmark will remain substantially above levels considered to be well-capitalized under all relevant standards. At the present time, Trustmark believes, based on its evaluation and the advice of legal counsel, that a loss in any ~~such~~currently pending legal proceeding other than the settled Stanford litigation is not probable and a reasonable estimate cannot reasonably be made.

Note 1917 – Shareholders’ Equity

Regulatory Capital

~~128~~

~~phased in~~a capital conservation buffer of 2.500% at both December 31, ~~2019~~2022 and ~~1.875% at December 31, 2018.~~2021. Accumulated other comprehensive ~~loss,~~income (loss), net of tax, is not included in computing regulatory capital. Trustmark elected the five-year phase-in transition period (through December 31, 2024) related to adopting FASB ASU 2016-13 for regulatory capital purposes. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. ~~As of~~At December 31, ~~2019,~~2022, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met applicable regulatory guidelines to be considered well-capitalized at December 31, ~~2019.~~2022. To be categorized in this manner, Trustmark and TNB maintained minimum common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios as set forth in the accompanying table, and were not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by their primary federal regulators to meet and maintain a specific capital level for any capital measures. There are no significant conditions or events that have occurred since December 31, ~~2019,~~2022, which Management believes have affected Trustmark’s or TNB’s present classification.

132

The following table provides Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at December 31, ~~2019~~2022 and ~~2018~~2021 ($ in thousands):

	Actual
	Regulatory Capital					Minimum			To Be Well			Actual
	Amount		Ratio			Requirement			Capitalized			Regulatory Capital					Minimum			To Be Well
At December 31, 2019:
												Amount		Ratio			Requirement			Capitalized
At December 31, 2022:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,312,668		11.93	%		7.000	%	n/a			$	1,413,672		9.74	%		7.000	%	n/a
Trustmark National Bank		1,352,893		12.30	%		7.000	%		6.50	%		1,501,889		10.34	%		7.000	%		6.50	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,372,668		12.48	%		8.500	%	n/a			$	1,473,672		10.15	%		8.500	%	n/a
Trustmark National Bank		1,352,893		12.30	%		8.500	%		8.00	%		1,501,889		10.34	%		8.500	%		8.00	%

Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,457,760		13.25	%		10.500	%	n/a			$	1,729,499		11.91	%		10.500	%	n/a
Trustmark National Bank		1,437,985		13.07	%		10.500	%		10.00	%		1,634,454		11.26	%		10.500	%		10.00	%

Tier 1 Leverage (to Average Assets)
Trustmark Corporation	$	1,372,668		10.48	%		4.00	%	n/a			$	1,473,672		8.47	%		4.00	%	n/a
Trustmark National Bank		1,352,893		10.35	%		4.00	%		5.00	%		1,501,889		8.65	%		4.00	%		5.00	%

At December 31, 2018:
At December 31, 2021:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,271,538		11.77	%		6.375	%	n/a			$	1,425,227		11.29	%		7.000	%	n/a
Trustmark National Bank		1,311,548		12.14	%		6.375	%		6.50	%		1,518,599		12.03	%		7.000	%		6.50	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,331,538		12.33	%		7.875	%	n/a			$	1,485,227		11.77	%		8.500	%	n/a
Trustmark National Bank		1,311,548		12.14	%		7.875	%		8.00	%		1,518,599		12.03	%		8.500	%		8.00	%

Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,412,059		13.07	%		9.875	%	n/a			$	1,710,700		13.55	%		10.500	%	n/a
Trustmark National Bank		1,392,069		12.89	%		9.875	%		10.00	%		1,621,030		12.84	%		10.500	%		10.00	%

Tier 1 Leverage (to Average Assets)
Trustmark Corporation	$	1,331,538		10.26	%		4.00	%	n/a			$	1,485,227		8.73	%		4.00	%	n/a
Trustmark National Bank		1,311,548		10.13	%		4.00	%		5.00	%		1,518,599		8.94	%		4.00	%		5.00	%

~~129~~133

Dividends on Common Stock

Dividends paid by Trustmark are substantially funded from dividends received from TNB. Approval by TNB’s regulators is required if the total of all dividends declared in any calendar year exceeds the total of its net income for that year combined with its retained net income of the preceding two ~~years.~~years. In ~~2020,~~2023, TNB will have available approximately ~~$56.8~~$96.9 million plus its net income for that year to pay as dividends.

Stock Repurchase Program

On March 11, 2016, the Board of Directors of Trustmark authorized a stock repurchase program under which $100.0 million of Trustmark’s outstanding common stock could be acquired through March 31, 2019. Trustmark repurchased approximately 1.2 million shares of its common stock valued at $36.9 million during the year ended December 31, 2019, compared to 2.0 million shares of its common stock valued at $62.4 million repurchased during the year ended December 31, 2018 and 0 common stock repurchased during the year ended December 31, 2017. Under the 2016 program, Trustmark repurchased approximately 3.2 million shares valued at $100.0 million.

The Board of Directors of Trustmark authorized a stock repurchase program effective April 1, 2019 under which ~~$100.0~~$100.0 million of Trustmark’s outstanding common stock ~~may~~could be acquired through March 31, 2020. The adoption of this stock repurchase program followed the receipt of non-objection from the FRB. ~~The shares may be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under this authority,~~ Trustmark repurchased approximately ~~601~~887 thousand shares of its common stock valued at ~~$19.7~~$27.5 million during the year ended December 31, ~~2019.~~

~~Together, with~~2020, compared to approximately 601 thousand shares of its common stock valued at $19.7 million during the ~~repurchases under~~year ended December 31, 2019. Under the ~~2016~~2019 program, Trustmark ~~purchased~~repurchased approximately ~~1.8~~1.5 million shares of its common stock valued at ~~$56.6 million during the year ended December 31, 2019.~~$47.2 million.

On January 28, 2020, the Board of Directors of Trustmark authorized a ~~new~~ stock repurchase program effective April 1, 2020 under which ~~$100.0~~$100.0 million of Trustmark’s outstanding common stock could be acquired through December 31, 2021. On March 9, 2020, Trustmark suspended its share repurchase programs to preserve capital to support customers during the COVID-19 pandemic. Trustmark resumed the repurchase of its shares in January 2021. Under this authority, Trustmark repurchased approximately 1.9 million shares of its outstanding common stock valued at $61.8 million during the year ended December 31, 2021.

On December 7, 2021, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2022, under which $100.0 million of Trustmark’s outstanding shares could be acquired through December 31, 2022. Under this authority, Trustmark repurchased approximately 789 thousand shares of its common stock valued at $24.6 million during the twelve months ended December 31, 2022.

On December 6, 2022, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2023, under which $50.0 million of Trustmark’s outstanding shares may be acquired through December 31, ~~2021.~~2023. The ~~shares may~~repurchase program, which is subject to market conditions and management discretion, will be ~~purchased from time to time at prevailing market prices,~~implemented through open market repurchases or privately negotiated ~~transactions, depending on market conditions. There is no guarantee as to the number of~~transactions. No shares ~~that may be~~have been repurchased ~~by Trustmark, and Trustmark may discontinue purchases at any time at Management’s discretion.~~under this stock repurchase program.

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive ~~Loss~~Income (Loss)

The following tables present the net change in the components of accumulated other comprehensive ~~loss~~income (loss) and the related tax effects allocated to each component for the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017~~2020 ($ in thousands). ~~Reclassification adjustments related to securities available for sale are included in securities gains (losses), net in the accompanying consolidated statements of income.~~ The amortization of prior service cost, recognized net loss due to lump sum settlements and change in net actuarial loss ~~and recognized net loss due to defined benefit plan termination for pension and other postretirement benefit plans~~ are included in the computation of net periodic benefit cost (see Note 1614 – Defined Benefit and Other Postretirement Benefits for additional details). Reclassification adjustments related to pension and other postretirement benefit plans are included in salaries and employee benefits ~~defined benefit plan termination~~ and other expense in the accompanying consolidated statements of income. Reclassification adjustments related to the cash flow hedge ~~derivative~~derivatives are included in ~~other~~ interest ~~expense~~and fees on LHFS and LHFI in the accompanying consolidated statements of income.

~~130~~134

	Before Tax			Tax (Expense)			Net of Tax
	Amount			Benefit			Amount			Before Tax				Tax (Expense)			Net of Tax
Year Ended December 31, 2019
										Amount				Benefit			Amount
Year Ended December 31, 2022
Securities available for sale and transferred securities:
Net unrealized holding gains (losses) arising during the period	$	44,136		$	(11,033	)	$	33,103		$	(229,524	)		$	57,381		$	(172,143	)
Change in net unrealized holding loss on securities transferred to held to maturity		3,605			(901	)		2,704			(86,033	)			21,508			(64,525	)
Total securities available for sale and transferred securities		47,741			(11,934	)		35,807			(315,557	)			78,889			(236,668	)
Pension and other postretirement benefit plans:
Change in the actuarial loss of pension and other postretirement benefit plans		(5,703	)		1,425			(4,278	)		10,792				(2,698	)		8,094
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		250			(63	)		187			111				(28	)		83
Recognized net loss due to lump sum settlements		312			(77	)		235			—				—			—
Change in net actuarial loss		796			(199	)		597			1,089				(272	)		817
Total pension and other postretirement benefit plans		(4,345	)		1,086			(3,259	)		11,992				(2,998	)		8,994
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective cash flow hedge derivatives		(145	)		36			(109	)		(20,685	)			5,171			(15,514	)
Reclassification adjustment for (gain) loss realized in net income		(479	)		119			(360	)		460				(115	)		345
Total cash flow hedge derivatives		(624	)		155			(469	)		(20,225	)			5,056			(15,169	)
Total other comprehensive income (loss)	$	42,772		$	(10,693	)	$	32,079		$	(323,790	)		$	80,947		$	(242,843	)

Year Ended December 31, 2018
Year Ended December 31, 2021
Securities available for sale and transferred securities:
Net unrealized holding gains (losses) arising during the period	$	(19,221	)	$	4,805		$	(14,416	)	$	(49,454	)		$	12,364		$	(37,090	)
Change in net unrealized holding loss on securities transferred to held to maturity		3,761			(940	)		2,821			2,647				(662	)		1,985
Total securities available for sale and transferred securities		(15,460	)		3,865			(11,595	)		(46,807	)			11,702			(35,105	)
Pension and other postretirement benefit plans:
Change in the actuarial loss of pension and other postretirement benefit plans		3,742			(936	)		2,806			2,845				(711	)		2,134
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		250			(63	)		187			111				(27	)		84
Recognized net loss due to lump sum settlements		161			(39	)		122			183				(46	)		137
Change in net actuarial loss		1,225			(306	)		919			1,655				(414	)		1,241
Total pension and other postretirement benefit plans		5,378			(1,344	)		4,034			4,794				(1,198	)		3,596
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective cash flow hedge derivatives		497			(124	)		373
Reclassification adjustment for (gain) loss realized in net income		(322	)		80			(242	)
Total cash flow hedge derivatives		175			(44	)		131
Total other comprehensive income (loss)	$	(9,907	)	$	2,477		$	(7,430	)	$	(42,013	)		$	10,504		$	(31,509	)

Year Ended December 31, 2017
Year Ended December 31, 2020
Securities available for sale and transferred securities:													��
Net unrealized holding gains (losses) arising during the period	$	(13,994	)	$	5,353		$	(8,641	)	$	30,622			$	(7,657	)	$	22,965
Reclassification adjustment for net (gains) losses realized in net income		(15	)		6			(9	)
Change in net unrealized holding loss on securities transferred to held to maturity		4,721			(1,806	)		2,915			3,177				(794	)		2,383
Total securities available for sale and transferred securities		(9,288	)		3,553			(5,735	)		33,799				(8,451	)		25,348
Pension and other postretirement benefit plans:
Change in the actuarial loss of pension and other postretirement benefit plans		(1,231	)		471			(760	)		(5,128	)			1,282			(3,846	)
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		250			(96	)		154			150				(38	)		112
Recognized net loss due to lump sum settlements											119				(30	)		89
Change in net actuarial loss		1,962			(751	)		1,211			1,128				(282	)		846
Recognized net loss due to defined benefit plan termination		17,662			(6,755	)		10,907
Total pension and other postretirement benefit plans		18,643			(7,131	)		11,512			(3,731	)			932			(2,799	)
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective cash flow hedge derivatives		198			(76	)		122
Reclassification adjustment for (gain) loss realized in net income		282			(108	)		174
Total cash flow hedge derivatives		480			(184	)		296
Total other comprehensive income (loss)	$	9,835		$	(3,762	)	$	6,073		$	30,068			$	(7,519	)	$	22,549

~~131~~135

The following table presents the changes in the balances of each component of accumulated other comprehensive ~~loss~~income (loss) for the periods presented ($ in thousands). All amounts are presented net of tax.


	Securities Available for Sale and Transferred Securities			Defined Benefit Pension Items			Cash Flow Hedge Derivative			Total
Balance, January 1, 2020	$	(8,017	)	$	(15,583	)	$	—		$	(23,600	)
Other comprehensive income (loss) before reclassification		25,348			(3,846	)		—			21,502
Amounts reclassified from accumulated other comprehensive income (loss)		—			1,047			—			1,047
Net other comprehensive income (loss)		25,348			(2,799	)		—			22,549
Balance, December 31, 2020		17,331			(18,382	)		—			(1,051	)
Other comprehensive income (loss) before reclassification		(35,105	)		2,134			—			(32,971	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			1,462			—			1,462
Net other comprehensive income (loss)		(35,105	)		3,596			—			(31,509	)
Balance, December 31, 2021		(17,774	)		(14,786	)		—			(32,560	)
Other comprehensive income (loss) before reclassification		(236,668	)		8,094			(15,514	)		(244,088	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			900			345			1,245
Net other comprehensive income (loss)		(236,668	)		8,994			(15,169	)		(242,843	)
Balance, December 31, 2022	$	(254,442	)	$	(5,792	)	$	(15,169	)	$	(275,403	)

Securities
Available for Sale
and Transferred
Securities

Defined
Benefit
Pension Items

Cash Flow Hedge Derivative

Total

Balance, January 1, 2017

$
(20,800
)

$
(24,980
)

$
(18
)

$
(45,798
)
Other comprehensive income (loss) before
   reclassification

(5,726
)

(760
)

122

(6,364
)
Amounts reclassified from accumulated other
   comprehensive loss

(9
)

12,272

174

12,437

Net other comprehensive income (loss)

(5,735
)

11,512

296

6,073

Balance, December 31, 2017

(26,535
)

(13,468
)

278

(39,725
)
Other comprehensive income (loss) before
   reclassification

(11,595
)

2,806

373

(8,416
)
Amounts reclassified from accumulated other
   comprehensive loss

—

1,228

(242
)

986

Net other comprehensive income (loss)

(11,595
)

4,034

131

(7,430
)
Reclassification of certain income tax effects related to the change
     in the federal statutory income tax rate under the Tax Reform Act
(5,694
)

(2,890
)

60

(8,524
)
Balance, December 31, 2018

(43,824
)

(12,324
)

469

(55,679
)
Other comprehensive income (loss) before reclassification

35,807

(4,278
)

(109
)

31,420

Amounts reclassified from accumulated other
   comprehensive loss

—

1,019

(360
)

659

Net other comprehensive income (loss)

35,807

(3,259
)

(469
)

32,079

Balance, December 31, 2019

$
(8,017
)

$
(15,583
)

$
—

$
(23,600
)

Note 2018 – Fair Value

Financial Instruments Measured at Fair Value

The methodologies Trustmark uses in determining the fair values are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected upon exchange of the position in an orderly transaction between market participants at the measurement date. The predominant portion of assets that are stated at fair value are of a nature that can be valued using prices or inputs that are readily observable through a variety of independent data providers. The providers selected by Trustmark for fair valuation data are widely recognized and accepted vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. Trustmark has documented and evaluated the pricing methodologies used by the vendors and maintains internal processes that regularly test valuations for anomalies.

Trustmark utilizes an independent pricing service to advise it on the carrying value of the securities available for sale portfolio. As part of Trustmark’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, Trustmark investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. Trustmark has also reviewed and confirmed its determinations in thorough discussions with the pricing source regarding their methods of price discovery.

Mortgage loan commitments are valued based on the securities prices of similar collateral, term, rate and delivery for which the loan is eligible to deliver in place of the particular security. Trustmark acquires a broad array of mortgage security prices that are supplied by a market data vendor, which in turn accumulates prices from a broad list of securities dealers. Prices are processed through a mortgage pipeline management system that accumulates and segregates all loan commitment and forward-sale transactions according to the similarity of various characteristics (maturity, term, rate, and collateral). Prices are matched to those positions that are deemed to be an eligible substitute or offset (i.e., “deliverable”) for a corresponding security observed in the ~~market place.~~marketplace.

Trustmark estimates fair value of the MSR through the use of prevailing market participant assumptions and market participant valuation processes. This valuation is periodically tested and validated against other third-party firm valuations.

Trustmark obtains the fair value of interest rate swaps from a third-party pricing service that uses an industry standard discounted cash flow methodology. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its interest rate swap contracts for the effect of nonperformance risk, Trustmark has considered any

136

applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction

~~132~~

with the FASB’s fair value measurement guidance, Trustmark made an accounting policy election to measure the credit risk of these derivative financial instruments, which are subject to master netting agreements, on a net basis by counterparty portfolio.

Trustmark has determined that the majority of the inputs used to value its interest rate swaps offered to qualified commercial borrowers fall within Level 2 of the fair value hierarchy, while the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads. Trustmark has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate swaps and has determined that the credit valuation adjustment is not significant to the overall valuation of these derivatives. As a result, Trustmark classifies its interest rate swap valuations in Level 2 of the fair value hierarchy.

Trustmark also utilizes exchange-traded derivative instruments such as Treasury note futures contracts and option contracts to achieve a fair value return that offsets the changes in fair value of the MSR attributable to interest rates. Fair values of these derivative instruments are determined from quoted prices in active markets for identical assets therefore allowing them to be classified within Level 1 of the fair value hierarchy. In addition, Trustmark utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area which lack observable inputs for valuation purposes resulting in their inclusion in Level 3 of the fair value hierarchy.

Financial Assets and Liabilities

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis ~~as of~~at December 31, ~~2019~~2022 and ~~2018,~~2021, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value ($ in thousands). There were no transfers between fair value levels for the years ended December 31, ~~2019~~2022 and ~~2018.~~2021.

	December 31, 2019
	Total		Level 1		Level 2		Level 3		December 31, 2022
									Total		Level 1		Level 2		Level 3
U.S. Treasury securities									$	391,513	$	391,513	$	—	$	—
U.S. Government agency obligations	$	22,327	$	—	$	22,327	$	—		7,766		—		7,766		—
Obligations of states and political subdivisions		25,465		—		25,465		—		4,862		—		4,862		—
Mortgage-backed securities		1,554,612		—		1,554,612		—		1,619,941		—		1,619,941		—
Securities available for sale		1,602,404		—		1,602,404		—		2,024,082		391,513		1,632,569		—
Loans held for sale		226,347		—		226,347		—
Mortgage servicing rights		79,394		—		—		79,394
LHFS										135,226		—		135,226		—
MSR										129,677		—		—		129,677
Other assets - derivatives		17,956		244		16,273		1,439		8,871		54		8,660		157
Other liabilities - derivatives		6,063		4,414		1,649		—		45,379		474		44,905		—


	December 31, 2021
	Total		Level 1		Level 2		Level 3
U.S. Treasury securities	$	344,640	$	344,640	$	—	$	—
U.S. Government agency obligations		13,727		—		13,727		—
Obligations of states and political subdivisions		5,714		—		5,714		—
Mortgage-backed securities		2,874,796		—		2,874,796		—
Securities available for sale		3,238,877		344,640		2,894,237		—
LHFS		275,706		—		275,706		—
MSR		87,687		—		—		87,687
Other assets - derivatives		24,809		2,794		20,156		1,859
Other liabilities - derivatives		4,677		414		4,263		—

December 31, 2018

Total

Level 1

Level 2

Level 3

U.S. Government agency obligations

$
30,335

$
—

$
30,335

$
—

Obligations of states and political subdivisions

50,676

—

50,676

—

Mortgage-backed securities

1,730,802

—

1,730,802

—

Securities available for sale

1,811,813

—

1,811,813

—

Loans held for sale

153,799

—

153,799

—

Mortgage servicing rights

95,596

—

—

95,596

Other assets - derivatives

12,347

5,006

6,154

1,187

Other liabilities - derivatives

4,213

66

4,147

—

~~133~~137

The changes in Level 3 assets measured at fair value on a recurring basis for the years ended December 31, ~~2019~~2022 and ~~2018~~2021 are summarized as follows ($ in thousands):


	MSR			Other Assets - Derivatives
Balance, January 1, 2022	$	87,687		$	1,859
Total net (loss) gain included in Mortgage banking, net (1)		24,147			(131	)
Additions		17,843			—
Sales		—			(1,571	)
Balance, December 31, 2022	$	129,677		$	157

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at December 31, 2022	$	38,181		$	(1,214	)

Balance, January 1, 2021	$	66,464		$	9,560
Total net (loss) gain included in Mortgage banking, net (1)		(6,902	)		9,104
Additions		28,125			—
Sales		—			(16,805	)
Balance, December 31, 2021	$	87,687		$	1,859

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at December 31, 2021	$	13,258		$	3,159

MSR

Other Assets -
Derivatives

Balance, January 1, 2019

$
95,596

$
1,187

Total net (loss) gain included in Mortgage banking, net (1)

(32,913
)

6,775

Additions

16,711

—

Sales

—

(6,523
)
Balance, December 31, 2019

$
79,394

$
1,439

The amount of total gains (losses) for the period included in earnings that are
   attributable to the change in unrealized gains or losses still held at
   December 31, 2019

$
(21,078
)

$
1,284

Balance, January 1, 2018

$
84,269

$
900

Total net (loss) gain included in Mortgage banking, net (1)

(4,432
)

4,390

Additions

15,759

—

Sales

—

(4,103
)
Balance, December 31, 2018

$
95,596

$
1,187

The amount of total gains (losses) for the period included in earnings that are
   attributable to the change in unrealized gains or losses still held at
   December 31, 2018

$
7,342

$
636

(1)

Total net (loss) gain included in Mortgage banking, net relating to the MSR includes changes in fair value due to market changes and due to run-off.

~~(1)~~

~~Total net (loss) gain included in Mortgage banking, net relating to the MSR includes changes in fair value due to market changes and due to run-off.~~

Trustmark may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. Assets at December 31, ~~2019,~~2022, which have been measured at fair value on a nonrecurring basis, include ~~impaired~~collateral-dependent LHFI. ~~Loans for which it~~A loan is ~~probable Trustmark will be unable to collect~~collateral dependent when the ~~scheduled payments of principal or interest when due according to the contractual terms~~borrower is experiencing financial difficulty and repayment of the loan ~~agreement are considered impaired. Specific allowances for impaired LHFI are based on comparisons~~is expected to be provided substantially through the sale of the ~~recorded carrying values~~collateral. The expected credit loss for collateral-dependent loans is measured as the difference between the amortized cost basis of the ~~loans to the present value of the estimated cash flows of these loans at each loan’s original effective interest rate,~~loan and the fair value of the collateral, oradjusted for the ~~observable market prices of the loans. Impaired LHFI are primarily collateral dependent loans and are assessed using a fair value approach.~~estimated cost to sell. Fair value estimates for ~~collateral dependent~~collateral-dependent loans are derived from appraised values based on the current market value or ~~as-is~~as is value of the ~~property being appraised,~~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. Appraised~~acceptable, and values are adjusted down for costs associated with asset disposal. At December 31, ~~2019,~~2022, Trustmark had outstanding balances of ~~$41.2~~$40.3 million with a related ~~allowance~~ACL of ~~$5.5~~$17.7 million in ~~impaired~~collateral-dependent LHFI, ~~that were individually evaluated for impairment and written down to fair value of the underlying collateral less cost to sell based on the fair value of the collateral or other unobservable input~~ compared to ~~$55.8~~outstanding balances of $44.4 million with a related ~~allowance~~ACL of ~~$6.4~~$7.6 million in collateral-dependent LHFI at December 31, ~~2018. These individually evaluated impaired~~2021. The collateral-dependent LHFI are classified as Level 3 in the fair value hierarchy. ~~Impaired LHFI are periodically reviewed and evaluated for additional impairment and adjusted accordingly based on the same factors identified above.~~

Nonfinancial Assets and Liabilities

Certain nonfinancial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.

Other real estate includes assets that have been acquired in satisfaction of debt through foreclosure and is ~~carried~~recorded at the ~~lower~~fair value less cost to sell (estimated fair value) at the time of ~~cost or estimated fair value.~~foreclosure. Fair value is based on independent appraisals and other relevant factors. In the determination of fair value subsequent to foreclosure, Management also considers other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated in the appraisals. Periodic revaluations are classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market.

~~134~~

Foreclosed assets of ~~$15.0~~$3.0 million were re-measured during ~~2019,~~2022, requiring write-downs of ~~$2.4~~$1.0 million to reach their current fair values compared to ~~$19.2~~$7.3 million of foreclosed assets that were re-measured during ~~2018,~~2021, requiring write-downs of ~~$873~~$437 thousand.

138

Fair Value of Financial Instruments

FASB ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The carrying amounts and estimated fair values of financial instruments at December 31, ~~2019~~2022 and ~~2018~~2021 were as follows ($ in thousands):


	December 31, 2019				December 31, 2018				December 31, 2022				December 31, 2021
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Level 2 Inputs:
Cash and short-term investments	$	358,916	$	358,916	$	350,391	$	350,391	$	738,787	$	738,787	$	2,266,829	$	2,266,829
Securities held to maturity		738,099		746,202		909,643		889,733		1,494,514		1,406,589		342,537		353,511
Level 3 Inputs:
Net LHFI		9,251,351		9,235,674		8,756,578		8,757,817
Net acquired loans		71,786		71,786		105,701		105,701
Net LHFI and PPP loans										12,083,825		11,850,318		10,181,708		10,123,379

Financial Liabilities:
Level 2 Inputs:
Deposits		11,245,557		11,250,071		11,364,411		11,365,203		14,437,648		14,404,661		15,087,160		15,084,440
Federal funds purchased and securities sold under repurchase agreements		256,020		256,020		50,471		50,471		449,331		449,331		238,577		238,577
Other borrowings		85,396		85,374		79,885		79,827		1,050,938		1,050,932		91,025		91,022
Subordinated notes										123,262		113,125		123,042		128,438
Junior subordinated debt securities		61,856		50,722		61,856		53,196		61,856		46,392		61,856		49,485

Fair Value Option

Trustmark has elected to account for its LHFS under the fair value option, with interest income on these LHFS reported in interest and fees on LHFS and LHFI. The fair value of the LHFS is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan. The LHFS are actively managed and monitored and certain market risks of the loans may be mitigated through the use of derivatives. These derivative instruments are carried at fair value with changes in fair value recorded as noninterest income in mortgage banking, net. The changes in the fair value of the LHFS are largely offset by changes in the fair value of the derivative instruments. For the years ended December 31, ~~2019, 2018~~2022 and ~~2017, a~~2021, net ~~gain~~losses of ~~$1.5 million, $1.4~~$3.3 million and ~~$3.0~~$10.3 million, respectively, ~~was~~were recorded as noninterest income in mortgage banking, net for changes in the fair value of the LHFS accounted for under the fair value ~~option.~~option compared to a net gain of $10.5 million for the year ended December 31, 2020. Interest and fees on LHFS and LHFI for the ~~years~~year ended December 31, ~~2019~~2022 included ~~$5.9~~$6.8 million of interest earned on the LHFS accounted for under the fair value option compared to ~~$4.9~~$7.0 million and $6.9 million for ~~both~~the years ended December 31, ~~2018~~2021 and ~~2017.~~2020, respectively. Election of the fair value option allows Trustmark to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value. The fair value option election does not apply to the GNMA optional repurchase loans which do not meet the requirements under FASB ASC Topic 825 to be accounted for under the fair value option. GNMA optional repurchase loans totaled ~~$57.1~~$70.8 million and ~~$61.6~~$84.5 million at December 31, ~~2019~~2022 and ~~2018,~~2021, respectively, and are included in LHFS on the accompanying consolidated balance sheets.

The following table provides information about the fair value and the contractual principal outstanding of the LHFS accounted for under the fair value option ~~as of~~at December 31, ~~2019~~2022 and ~~2018~~2021 ($ in thousands):


	December 31,
	2022		2021
Fair value of LHFS	$	64,421	$	191,242
LHFS contractual principal outstanding		63,427		186,535
Fair value less unpaid principal	$	994	$	4,707

December 31,

2019

2018

Fair value of LHFS

$
169,285

$
92,235

LHFS contractual principal outstanding

164,420

89,056

Fair value less unpaid principal

$
4,865

$
3,179

Note 2119 – Derivative Financial Instruments

Derivatives Designated as Hedging Instruments

~~On April 4, 2013,~~During the third quarter of 2022, Trustmark entered into a forward interest rate swap contract on junior subordinated debentures with a total notional amount of $60.0 million. The interest rate swap contract was designated as a derivative instrument ininitiated a cash flow ~~hedge under FASB~~hedging program. Trustmark's objectives in initiating this hedging program are to add stability to interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Trustmark making variable-rate

~~135~~139

~~ASC Topic 815~~

payments over the life of the agreements without exchange of the underlying notional amount. Trustmark uses such derivatives to hedge the variable cash flows associated with ~~the objective of protecting the quarterly interest payments on Trustmark’s $60.0 million of junior subordinated debentures issued to Trustmark Preferred Capital Trust I throughout the~~ ~~five-year~~ ~~period which began~~existing and anticipated variable-rate loan assets. At December 31, ~~2014 and ended December 31, 2019 from~~2022, the ~~risk~~aggregate notional value of ~~variability of those payments resulting from changes in the three-month LIBOR interest rate. Under the swap, which became effective on December 31, 2014, Trustmark paid a fixed~~Trustmark's interest rate ~~of 1.66% and received a variable interest rate based on three-month LIBOR on a total notional amount of $60.0 million, with quarterly net settlements.~~

~~NaN ineffectiveness related to the interest rate swap~~swaps designated as a cash flow ~~hedge was recognized in the consolidated statements of income for the years ended December 31, 2019, 2018 and 2017. The interest rate swap matured~~hedges totaled $825.0 million.

Trustmark records any gains or losses on ~~December 31, 2019; therefore, there was 0 accumulated net after-tax amount related to the effective~~these cash flow ~~hedge included~~hedges in accumulated other comprehensive ~~loss at December 31, 2019 compared to a net after-tax gain of $469 thousand at December 31, 2018. Amounts~~income (loss). As interest payments are received on Trustmark's variable-rate assets, amounts reported in accumulated other comprehensive ~~loss related~~income (loss) are reclassified into interest and fees on LHFS and LHFI in the accompanying consolidated statements of income during the same period. During the next twelve months, Trustmark estimates that $13.7 million will be reclassified as a reduction to ~~this derivative were reclassified~~interest and fees on LHFS and LHFI. This amount could differ due to changes in interest rates, hedge de-designations or the addition of other ~~interest expense as interest payments were made on Trustmark’s variable rate junior subordinated debentures.~~hedges.

Derivatives not Designated as Hedging Instruments

As part of Trustmark’s risk management strategy in the mortgage banking area, derivative instruments such as forward sales contracts are utilized. Trustmark’s obligations under forward sales contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. Changes in the fair value of these derivative instruments are recorded as noninterest income in mortgage banking, net and are offset by changes in the fair value of LHFS. Trustmark’s off-balance sheet obligations under these derivative instruments totaled ~~$209.0~~$97.0 million at December 31, ~~2019,~~2022, with a positive valuation adjustment of $168 thousand, compared to $236.0 million at December 31, 2021, with a negative valuation adjustment of ~~$486 thousand, compared to $132.0 million at December 31, 2018, with a negative valuation adjustment of $1.8 million.~~$81 thousand.

Trustmark also utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area. Interest rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified time period. Changes in the fair value of these derivative instruments are recorded as noninterest income in mortgage banking, net and are offset by the changes in the fair value of forward sales contracts. Trustmark’s off-balance sheet obligations under these derivative instruments totaled ~~$92.1~~$68.4 million at December 31, ~~2019,~~2022, with a positive valuation adjustment of ~~$1.4 million,~~$157 thousand, compared to ~~$71.2~~$142.6 million at December 31, ~~2018,~~2021, with a positive valuation adjustment of ~~$1.2~~$1.9 million.

Trustmark offers certain derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships and are, therefore, carried at fair value with the change in fair value recorded as noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As ofa result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets. At December 31, ~~2019,~~2022, Trustmark had interest rate swaps with an aggregate notional amount of ~~$893.1 million~~$1.391 billion related to this program, compared to ~~$475.8 million as of~~$1.225 billion at December 31, ~~2018.~~2021.

Credit-risk-related Contingent Features

~~As of~~At December 31, ~~2019 and 2018, the~~2022, there was no termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements ~~was $1.0 million and $75~~compared to a termination value of $655 thousand ~~respectively. As of~~at December 31, ~~2019,~~2021. At December 31, 2022 and 2021, Trustmark had posted collateral of ~~$1.4 million~~$740 thousand and $850 thousand, respectively, against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at December 31, ~~2019,~~2022, it could have been required to settle its obligations under the agreements at the termination value.

~~136~~140

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a ~~third party~~third-party default on the underlying swap. At ~~both~~ December 31, ~~2019 and 2018,~~2022, Trustmark had entered into 3five risk participation agreements as a beneficiary with an aggregate notional ~~amounts~~amount of ~~$37.6~~$50.2 million ~~and $23.1~~compared to six risk participation agreements as a beneficiary with an aggregate notional amount of $52.0 million ~~respectively.~~at December 31, 2021. At December 31, ~~2019,~~2022, Trustmark had entered into 10twenty-nine risk participation agreements as a guarantor with an aggregate notional ~~amount~~amounts of ~~$79.3~~$235.8 million compared to 7twenty-four risk participation agreements as a guarantor with an aggregate notional ~~amount~~amounts of ~~$39.0~~$173.5 million at December 31, ~~2018.~~2021. The aggregate fair values of these risk participation agreements were immaterial at December 31, ~~2019~~2022 and ~~2018.~~2021.

Tabular Disclosures

The following tables disclose the fair value of derivative instruments in Trustmark’s consolidated balance sheets ~~as of~~at December 31, ~~2019~~2022 and ~~2018~~2021 as well as the effect of these derivative instruments on Trustmark’s results of operations for the periods presented ($ in thousands):


	December 31,
	2022			2021
Derivatives in hedging relationships
Interest rate contracts:
Interest rate swaps included in other liabilities (1)	$	761		$	—

Derivatives not designated as hedging instruments
Interest rate contracts:
Exchange traded purchased options included in other assets	$	38		$	438
OTC written options (rate locks) included in other assets		157			1,859
Futures contracts included in other assets		16			2,356
Interest rate swaps included in other assets (1)		8,654			20,115
Credit risk participation agreements included in other assets		6			41
Futures contracts included in other liabilities		268			—
Forward contracts included in other liabilities		(168	)		81
Exchange traded written options included in other liabilities		206			414
Interest rate swaps included in other liabilities (1)		44,304			4,144
Credit risk participation agreements included in other liabilities		8			38

December 31,

2019

2018

Derivatives in hedging relationships

Interest rate contracts:

Interest rate swaps included in other assets

$
—

$
625

Derivatives not designated as hedging instruments

Interest rate contracts:

Futures contracts included in other assets

$
—

$
4,445

Exchange traded purchased options included in other assets

244

561

OTC written options (rate locks) included in other assets

1,439

1,187

Interest rate swaps included in other assets

16,209

5,487

Credit risk participation agreements included in other assets

64

42

Futures contracts included in other liabilities

2,654

—

Forward contracts included in other liabilities

486

1,773

Exchange traded written options included in other liabilities

1,760

66

Interest rate swaps included in other liabilities

1,122

2,369

Credit risk participation agreements included in other liabilities

41

5

(1)

In accordance with GAAP, the variation margin collateral payments made or received for interest rate swaps that are centrally cleared are legally characterized as settled. As a result, the centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets.


	Years Ended December 31,									Years Ended December 31,
	2019			2018			2017			2022			2021			2020
Derivatives in hedging relationships
Amount of gain (loss) reclassified from accumulated other comprehensive loss and recognized in other interest expense	$	479		$	322		$	(282	)
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) and recognized in interest and fees on LHFS & LHFI										$	(460	)	$	—		$	—

Derivatives not designated as hedging instruments
Amount of gain (loss) recognized in mortgage banking, net	$	11,096		$	(6,191	)	$	(1,873	)	$	(43,764	)	$	(15,436	)	$	39,436
Amount of gain (loss) recognized in bank card and other fees		(776	)		(357	)		(31	)		403			1,649			(1,022	)

The following table discloses the amount included in other comprehensive income (loss), net of tax, for derivative instruments designated as cash flow hedges for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021		2020
Derivatives in cash flow hedging relationship
Amount of gain (loss) recognized in other comprehensive income (loss), net of tax	$	(15,514	)	$	—	$	—

Years Ended December 31,

2019

2018

2017

Derivatives in cash flow hedging relationship

Amount of gain (loss) recognized in other comprehensive
income (loss), net of tax

$
(109
)

$
373

$
122

~~137~~141

Information about financial instruments that are eligible for offset in the consolidated balance sheets ~~as of~~at December 31, ~~2019~~2022 and ~~2018~~2021 is presented in the following tables ($ in thousands):


Offsetting of Derivative Assets
As of December 31, 2022
							Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received			Net Amount
Derivatives	$	9,415	$	—	$	9,415	$	—	$	(2,230	)	$	7,185


Offsetting of Derivative Liabilities
As of December 31, 2022
							Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Posted			Net Amount
Derivatives	$	44,304	$	—	$	44,304	$	—	$	(740	)	$	43,564


Offsetting of Derivative Assets
As of December 31, 2021
							Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received		Net Amount
Derivatives	$	20,115	$	—	$	20,115	$	(55	)	$	—	$	20,060


Offsetting of Derivative Liabilities
As of December 31, 2021
							Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted			Net Amount
Derivatives	$	4,144	$	—	$	4,144	$	(55	)	$	(850	)	$	3,239

Offsetting of Derivative Assets

As of December 31, 2019

Gross Amounts Not Offset in the
Statement of Financial Position

Gross
Amounts of
Recognized
Assets

Gross Amounts
Offset in the
Statement of
Financial Position

Net Amounts of
Assets presented
in the Statement of
Financial Position

Financial
Instruments

Cash Collateral
Received

Net Amount

Derivatives

$
16,209

$
—

$
16,209

$
—

$
—

$
16,209

Offsetting of Derivative Liabilities

As of December 31, 2019

Gross Amounts Not Offset in the
Statement of Financial Position

Gross
Amounts of
Recognized
Liabilities

Gross Amounts
Offset in the
Statement of
Financial Position

Net Amounts of
Liabilities presented
in the Statement of
Financial Position

Financial
Instruments

Cash Collateral
Posted

Net Amount

Derivatives

$
1,122

$
—

$
1,122

$
—

$
(1,390
)

$
(268
)

Offsetting of Derivative Assets

As of December 31, 2018

Gross Amounts Not Offset in the
Statement of Financial Position

Gross
Amounts of
Recognized
Assets

Gross Amounts
Offset in the
Statement of
Financial Position

Net Amounts of
Assets presented
in the Statement of
Financial Position

Financial
Instruments

Cash Collateral
Received

Net Amount

Derivatives

$
6,112

$
—

$
6,112

$
(339
)

$
(620
)

$
5,153

Offsetting of Derivative Liabilities

As of December 31, 2018

Gross Amounts Not Offset in the
Statement of Financial Position

Gross
Amounts of
Recognized
Liabilities

Gross Amounts
Offset in the
Statement of
Financial Position

Net Amounts of
Liabilities presented
in the Statement of
Financial Position

Financial
Instruments

Cash Collateral
Posted

Net Amount

Derivatives

$
2,369

$
—

$
2,369

$
(339
)

$
—

$
2,030

Note 2220 – Segment Information

Trustmark’s management reporting structure includes 3three segments: General Banking, Wealth Management and Insurance. The General Banking Segment is responsible for all traditional banking products and services, including loans and deposits. The General Banking Segment also consists of internal operations such as Human Resources, Executive Administration, Treasury (Funds Management), Public Affairs and Corporate Finance. The Wealth Management Segment provides customized solutions for customers by integrating financial services with traditional banking products and services such as money management, full-service brokerage, financial planning, personal and institutional trust and retirement services. Through ~~Fisher Brown Bottrell Insurance, Inc. (FBBI), a wholly owned subsidiary of TNB,~~FBBI, Trustmark’s Insurance Segment provides a full range of retail insurance products including commercial risk management products, bonding, group benefits and personal lines coverage.

During the first quarter of 2019, Trustmark revised the composition of its operating segments by moving the Private Banking Group from the General Banking Segment to the Wealth Management Segment as a result of a change in supervision of this group for reporting purposes. The prior periods presented include reclassifications to conform to the current period presentation.

The accounting policies of each reportable segment are the same as those of Trustmark except for its internal allocations. Noninterest expenses for back-office operations support are allocated to segments based on estimated uses of those services. Trustmark measures the net interest income of its business segments with a process that assigns cost of funds or earnings credit on a matched-term basis. This process, called “funds transfer pricing”, charges an appropriate cost of funds to assets held by a business unit, or credits the business unit for potential earnings for carrying liabilities. The net of these charges and credits flows through to the General Banking Segment, which contains the management team responsible for determining TNB’s funding and interest rate risk strategies.

~~138~~142

The following table discloses financial information by reportable segment for the periods presented ($ in thousands):


	Years Ended December 31,
	2022			2021			2020
General Banking
Net interest income	$	489,398		$	413,201		$	420,225
PCL (1)		22,913			(24,439	)		45,058
Noninterest income		116,350			137,874			197,691
Noninterest expense (1)		531,397			421,561			401,810
Income before income taxes		51,438			153,953			171,048
Income taxes		(3,683	)		22,706			25,109
General banking net income	$	55,121		$	131,247		$	145,939

Selected Financial Information
Total assets	$	17,710,673		$	17,275,438		$	16,226,358
Depreciation and amortization	$	38,909		$	44,776		$	40,351

Wealth Management
Net interest income	$	5,321		$	5,161		$	6,082
PCL		(21	)		(9	)		(11	)
Noninterest income		35,072			35,420			31,634
Noninterest expense		32,873			31,721			30,318
Income before income taxes		7,541			8,869			7,409
Income taxes		1,870			2,219			1,853
Wealth Management net income	$	5,671		$	6,650		$	5,556

Selected Financial Information
Total assets	$	214,313		$	232,997		$	242,429
Depreciation and amortization	$	288		$	269		$	274

Insurance
Net interest income	$	(11	)	$	(11	)	$	230
Noninterest income		53,722			48,616			45,268
Noninterest expense		38,943			36,014			34,173
Income before income taxes		14,768			12,591			11,325
Income taxes		3,673			3,123			2,795
Insurance net income	$	11,095		$	9,468		$	8,530

Selected Financial Information
Total assets	$	90,492		$	87,201		$	83,053
Depreciation and amortization	$	685		$	768		$	700

Consolidated
Net interest income	$	494,708		$	418,351		$	426,537
PCL (1)		22,892			(24,448	)		45,047
Noninterest income		205,144			221,910			274,593
Noninterest expense (1)		603,213			489,296			466,301
Income before income taxes		73,747			175,413			189,782
Income taxes		1,860			28,048			29,757
Consolidated net income	$	71,887		$	147,365		$	160,025

Selected Financial Information
Total assets	$	18,015,478		$	17,595,636		$	16,551,840
Depreciation and amortization	$	39,882		$	45,813		$	41,325

Years Ended December 31,

2019

2018

2017

General Banking

Net interest income

$
422,661

$
415,561

$
402,507

Provision for loan losses, net

10,838

17,001

7,485

Noninterest income

113,755

113,930

116,044

Noninterest expense

370,493

355,389

370,793

Income before income taxes

155,085

157,101

140,273

Income taxes

18,721

18,560

43,427

General banking net income

$
136,364

$
138,541

$
96,846

Selected Financial Information

Total assets

$
13,333,518

$
13,111,362

$
13,627,012

Depreciation and amortization

$
38,637

$
38,182

$
37,704

Wealth Management

Net interest income

$
3,686

$
3,633

$
4,809

Provision for loan losses, net

1

(13
)

214

Noninterest income

30,861

30,420

30,421

Noninterest expense

26,365

29,170

29,989

Income before income taxes

8,181

4,896

5,027

Income taxes

2,040

1,225

1,923

Wealth Management net income

$
6,141

$
3,671

$
3,104

Selected Financial Information

Total assets

$
90,113

$
106,179

$
102,773

Depreciation and amortization

$
267

$
186

$
137

Insurance

Net interest income

$
242

$
226

$
234

Noninterest income

42,429

40,486

38,198

Noninterest expense

32,144

30,856

29,387

Income before income taxes

10,527

9,856

9,045

Income taxes

2,572

2,484

3,365

Insurance net income

$
7,955

$
7,372

$
5,680

Selected Financial Information

Total assets

$
74,246

$
68,919

$
68,168

Depreciation and amortization

$
516

$
572

$
630

Consolidated

Net interest income

$
426,589

$
419,420

$
407,550

Provision for loan losses, net

10,839

16,988

7,699

Noninterest income

187,045

184,836

184,663

Noninterest expense

429,002

415,415

430,169

Income before income taxes

173,793

171,853

154,345

Income taxes

23,333

22,269

48,715

Consolidated net income

$
150,460

$
149,584

$
105,630

Selected Financial Information

Total assets

$
13,497,877

$
13,286,460

$
13,797,953

Depreciation and amortization

$
39,420

$
38,940

$
38,471

(1)

~~139~~143

Note 2321 – Parent Company Only Financial Information

($ in thousands)


Condensed Balance Sheets	December 31,				December 31,
	2019		2018		2022		2021
Assets:
Investment in banks	$	1,707,644	$	1,637,338	$	1,602,169	$	1,851,398
Other assets		15,778		16,975		76,325		75,995
Total Assets	$	1,723,422	$	1,654,313	$	1,678,494	$	1,927,393

Liabilities and Shareholders' Equity:
Accrued expense	$	864	$	1,004	$	1,108	$	1,184
Subordinated notes						123,262		123,042
Junior subordinated debt securities		61,856		61,856		61,856		61,856
Shareholders' equity		1,660,702		1,591,453		1,492,268		1,741,311
Total Liabilities and Shareholders' Equity	$	1,723,422	$	1,654,313	$	1,678,494	$	1,927,393


Condensed Statements of Income	Years Ended December 31,
	2022			2021		2020
Revenue:
Dividends received from banks	$	89,733		$	45,284	$	109,243
Earnings of subsidiaries over distributions		(11,269	)		108,141		53,724
Other income		94			95		66
Total Revenue		78,558			153,520		163,033
Expense:
Other expense		6,671			6,155		3,008
Total Expense		6,671			6,155		3,008
Net Income	$	71,887		$	147,365	$	160,025


Condensed Statements of Cash Flows	Years Ended December 31,
	2022			2021			2020
Operating Activities:
Net income	$	71,887		$	147,365		$	160,025
Adjustments to reconcile net income to net cash provided by operating activities:
Net change in investment in subsidiaries		11,269			(108,141	)		(53,724	)
Other		(1,550	)		(2,078	)		(326	)
Net cash from operating activities		81,606			37,146			105,975

Financing Activities:
Proceeds from subordinated notes		—			—			122,900
Common stock dividends		(56,679	)		(58,085	)		(58,769	)
Repurchase and retirement of common stock		(24,604	)		(61,799	)		(27,538	)
Net cash from financing activities		(81,283	)		(119,884	)		36,593
Net change in cash and cash equivalents		323			(82,738	)		142,568
Cash and cash equivalents at beginning of year		75,537			158,275			15,707
Cash and cash equivalents at end of year	$	75,860		$	75,537		$	158,275

Condensed Statements of Income

Years Ended December 31,

2019

2018

2017

Revenue:

Dividends received from banks

$
120,297

$
128,592

$
65,663

Earnings of subsidiaries over distributions

32,971

23,791

42,211

Other income

90

86

71

Total Revenue

153,358

152,469

107,945

Expense:

Other expense

2,898

2,885

2,315

Total Expense

2,898

2,885

2,315

Net Income

$
150,460

$
149,584

$
105,630

Condensed Statements of Cash Flows

Years Ended December 31,

2019

2018

2017

Operating Activities:

Net income

$
150,460

$
149,584

$
105,630

Adjustments to reconcile net income to net cash provided
by operating activities:

Net change in investment in subsidiaries

(32,971
)

(23,791
)

(42,211
)
Other

(1,800
)

(1,395
)

(1,697
)
Net cash from operating activities

115,689

124,398

61,722

Investing Activities:

Payment for investments in subsidiaries

—

—

(30,755
)
Repayment for investments in subsidiaries

—

—

32,000

Net cash from investing activities

—

—

1,245

Financing Activities:

Common stock dividends

(59,804
)

(62,425
)

(62,795
)
Repurchase and retirement of common stock

(56,615
)

(62,421
)

—

Net cash from financing activities

(116,419
)

(124,846
)

(62,795
)
Net change in cash and cash equivalents

(730
)

(448
)

172

Cash and cash equivalents at beginning of year

16,437

16,885

16,713

Cash and cash equivalents at end of year

$
15,707

$
16,437

$
16,885

Trustmark (parent company only) paid income taxes of approximately ~~$24.8~~$2.7 million in ~~2019, $12.4~~2022, $15.3 million in ~~2018~~2021 and ~~$7.4~~$46.6 million in ~~2017. During 2019 and 2018,~~2020. Trustmark paid interest ~~received was $482 thousand and $320 thousand, respectively,~~of $4.5 million in 2022 compared to ~~$283 thousand~~$4.6 million of interest paid ~~during 2017.~~in 2021 and no interest paid or received in 2020.

144

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

~~140~~

~~ITEM 9.~~

~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

There has been no change of accountants within the two-year period prior to December 31, ~~2019.~~2022.

ITEM 9A. CONTROLS AND PROCEDURES

~~ITEM 9A.~~

~~CONTROLS AND PROCEDURES~~

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out by Trustmark’s management, with the participation of its Chief Executive Officer and Treasurer and Principal Financial Officer (Principal Financial Officer), of the effectiveness of Trustmark’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No changes were made to Trustmark’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, Trustmark’s internal control over financial reporting.

Management Report on Internal Control over Financial Reporting

The management of Trustmark is responsible for establishing and maintaining adequate internal control over financial reporting. Trustmark’s internal control over financial reporting was designed under the supervision of the Chief Executive Officer and Treasurer (Principal Financial Officer) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with GAAP.

Management assessed the effectiveness of internal control over financial reporting as of December 31, ~~2019.~~2022. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our assessment, we believe that, as of December 31, ~~2019,~~2022, Trustmark’s internal control over financial reporting was effective based on those criteria.

The effectiveness of Trustmark’s internal control over financial reporting as of December 31, ~~2019~~2022 was audited by Crowe LLP, Atlanta, Georgia, (U.S. PCAOB Auditor Firm I.D.: 173), an independent registered public accounting firm, as stated in their report appearing in the section captioned “Report of Independent Registered Public Accounting Firm” included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

~~ITEM 9B.~~

~~OTHER INFORMATION~~

~~None~~

ITEM 9B. OTHER INFORMATION

~~141~~None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

145

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

~~ITEM 10.~~

~~DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~

Certain information regarding executive officers is included under the section captioned “Information about Executive Officers of Trustmark” in Part I. Item 1. - Business, elsewhere in this Annual Report on Form 10-K. Other information required by this Item is incorporated herein by reference to Trustmark Corporation’s (Trustmark’s) Proxy Statement (Schedule 14A) for its ~~2020~~2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of Trustmark’s fiscal year-end.

ITEM 11. EXECUTIVE COMPENSATION

~~ITEM 11.~~

~~EXECUTIVE COMPENSATION~~

The information required by this Item is incorporated herein by reference to Trustmark’s Proxy Statement (Schedule 14A) for its ~~2020~~2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of Trustmark’s fiscal year-end.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

~~ITEM 12.~~

~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~

Equity Compensation Plans

The table below contains summary information ~~as of~~at December 31, ~~2019~~2022 with respect to the Amended and Restated Stock and Incentive Compensation Plan, which is Trustmark’s only equity compensation plan under which shares of Trustmark common stock are authorized for issuance.


	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) (1)		Weighted-average exercise price of outstanding options, warrants and rights (2)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3)
Plan Category
Equity compensation plans approved by security holders		148,416	$	—		1,004,664
Equity compensation plans not approved by security holders		—		—		—
Total		148,416	$	—		1,004,664

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) (1)

Weighted-average exercise price of outstanding options, warrants and rights (2)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3)

Plan Category

Equity compensation plans approved by security holders

149,914

$
—

908,818

Equity compensation plans not approved by
security holders

—

—

—

Total

149,914

$
—

908,818

(1)

This number represents the maximum potential shares issuable in connection with the vesting in excess of 100% of unvested performance-based restricted stock and restricted stock unit awards previously granted.

(2)

Potential achievement shares, to the extent issued, do not have an exercise price and, therefore, are excluded for purposes of computing the weighted-average exercise price.

(3)

This number represents shares available for future awards under the Amended and Restated Stock and Incentive Compensation Plan at December 31, 2022, in connection with stock options, stock appreciation rights, restricted stock, restricted stock units and performance units.

~~(1)~~

~~(2)~~

~~Potential achievement shares, to the extent issued, do not have an exercise price and, therefore, are excluded for purposes of computing the weighted-average exercise price.~~

~~(3)~~

This number represents shares available for future awards under the Amended and Restated Stock and Incentive Compensation Plan as of December 31, 2019, in connection with stock options, stock appreciation rights, restricted stock, restricted stock units and performance units.

All other information required by this Item is incorporated herein by reference to Trustmark’s Proxy Statement (Schedule 14A) for its ~~2020~~2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of Trustmark’s fiscal year-end.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

~~ITEM 13.~~

~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE~~

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

~~ITEM 14.~~

~~PRINCIPAL ACCOUNTING FEES AND SERVICES~~

~~142~~146

PART IV

ITEM. 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

~~ITEM. 15.~~

~~EXHIBITS, FINANCIAL STATEMENT SCHEDULES~~

A-1. Financial Statements

The report of Crowe LLP, independent registered public accounting firm, and the following consolidated financial statements of Trustmark Corporation (Trustmark) and subsidiaries are included in the Registrant’s ~~2019~~2022 Annual Report ~~to Shareholders~~on Form 10-K and are incorporated into Part II. Item 8. – Financial Statements and Supplementary Data herein by reference:

Consolidated Balance Sheets as of December 31, ~~2019~~2022 and ~~2018~~2021

Consolidated Statements of Income for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017~~2020

Consolidated Statements of Comprehensive Income for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017~~2020

Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017~~2020

Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017~~2020

Notes to Consolidated Financial Statements (Notes 1 through ~~23)~~21)

A-2. Financial Statement Schedules

The schedules to the consolidated financial statements set forth by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.

A-3. Exhibits

The exhibits to this Annual Report on Form 10-K listed below have been included only with the copy of this report filed with the Securities and Exchange Commission. Copies of individual exhibits will be furnished to shareholders upon written request to Trustmark and payment of a reasonable fee.

ITEM. 16. SUMMARY

None.

147

EXHIBIT INDEX


2-a	~~SUMMARY~~

~~None~~

~~143~~

~~EXHIBIT INDEX~~

~~2-a~~		Agreement and Plan of Reorganization by and between Trustmark Corporation and BancTrust Financial Group, Inc. Filed June 1, 2012, as Exhibit 2.1 to Trustmark’s Form 8-K Current Report, incorporated herein by reference.

2-b		First Amendment to Agreement and Plan of Reorganization by and between Trustmark Corporation and BancTrust Financial Group, Inc. Filed October 9, 2012 as Exhibit 2.1 to Trustmark’s Form 8-K Current Report, incorporated herein by reference.

3-a		Articles of Incorporation of Trustmark, as restated April 28, 2016. Incorporated herein by reference to Exhibit 3.1 to Trustmark’s Form 8-K Current Report filed on May 2, 2016.

3-b		Amended and Restated Bylaws of Trustmark Corporation, as of ~~April 28, 2016 and further amended~~October 27, 2020. Filed on ~~December 11, 2018. Filed~~October 27, 2020, as Exhibit ~~3-b~~3.1 to Trustmark’s Form ~~10-K Annual~~8-K Current Report, ~~for the year ended December 31, 2018,~~ incorporated herein by reference.

4-a		Amended and Restated Trust Agreement among Trustmark Corporation, Wilmington Trust Company and the Administrative Trustees regarding Trustmark Preferred Capital Trust I. Filed August 21, 2006, as Exhibit 4.1 to Trustmark’s Form 8-K Current Report, incorporated herein by reference.

4-b		Junior Subordinated Indenture between Trustmark Corporation and Wilmington Trust Company. Filed August 21, 2006, as Exhibit 4.2 to Trustmark’s Form 8-K Current Report, incorporated herein by reference.

4-c		Guarantee Agreement between Trustmark Corporation and Wilmington Trust Company. Filed August 21, 2006, as Exhibit 4.3 to Trustmark’s Form 8-K Current Report, incorporated herein by reference.

4-d		Description of Trustmark’s Common Stock. Filed February 20, 2020, as exhibit 4-d to Trustmark’s Form 10-K Annual Report, incorporated herein by reference.

10-a		Deferred Compensation Plan for Executive Officers (Executive Deferral Plan-Group 2) of Trustmark National Bank, as amended. Filed as Exhibit 10-a to Trustmark’s Form 10-K Annual Report for the year ended December 31, 2007, incorporated herein by reference. *

10-b		Deferred Compensation Plan for Directors of First National Financial Corporation acquired October 7, 1994. Filed as Exhibit 10-c to Trustmark’s Form 10-K Annual Report for the year ended December 31, 1994, incorporated herein by reference. *

10-c		Deferred Compensation Plan for Directors (Directors’ Deferred Fee Plan) of Trustmark National Bank, as amended. Filed as Exhibit 10-e to Trustmark’s Form 10-K Annual Report for the year ended December 31, 2007, incorporated herein by reference. *

10-d		Deferred Compensation Plan for Executives (Executive Deferral Plan-Group 1) of Trustmark National Bank, as amended. Filed as Exhibit 10-f to Trustmark’s Form 10-K Annual Report for the year ended December 31, 2007, incorporated herein by reference. *

10-e		Trustmark Corporation Deferred Compensation Plan (Master Plan Document), as amended. Filed as Exhibit 10-g to Trustmark’s Form 10-K Annual Report for the year ended December 31, 2007, incorporated herein by reference. *

10-f		Trustmark Corporation Amended and Restated Stock and Incentive Compensation Plan, as amended and restated April 28, 2015. Filed May 4, 2015, as Exhibit 10-f to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-g		Revised Form of Restricted Stock Agreement (under the 2005 Stock and Incentive Compensation Plan). Filed February 26, 2009, as Exhibit 10-p to Trustmark’s Annual Report on Form 10-K, incorporated herein by reference. *

10-h		Revised Form of Time-Based Restricted Stock Agreement for Executive (under the 2005 Stock and Incentive Compensation Plan). Filed February 26, 2009, as Exhibit 10-q to Trustmark’s Annual Report on Form 10-K, incorporated herein by reference. *

10-i		First Amendment to Trustmark Corporation Deferred Compensation Plan (Master Plan Document). Filed November 7, 2008, as Exhibit 10-r to Trustmark’s Form 10-Q Quarterly Report for the quarter ended September 30, 2008, incorporated herein by reference. *

10-j		Form of Performance-Based TARP-Compliant Restricted Stock Agreement for Executive (under the 2005 Stock and Incentive Compensation Plan.). Filed November 9, 2009, as Exhibit 10-y to Trustmark’s Form 10-Q Quarterly Report for the quarter ended September 30, 2009 and incorporated herein by reference. *

~~144~~

10-k

Employment Agreement between Trustmark Corporation and Gerard R. Host dated September 14, 2010. Filed September 14, 2010, as Exhibit 10-z to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

148


10-l		Form of Time-Based Restricted Stock Agreement for Director (under the 2005 Stock and Incentive Compensation Plan.) Filed August 8, 2011 as Exhibit 10-aa to Trustmark’s Form 10-Q Quarterly Report for the quarter ended June 30, 2011 and incorporated herein by reference. *

10-m		Summary of the Trustmark Corporation Management Incentive Plan. Filed November 7, 2012, as Exhibit 10-ab to Trustmark’s Form 10-Q Quarterly Report for the quarter ended September 30, 2012 and incorporated herein by reference. *

10-n		Form of Performance-Based Restricted Stock Agreement for Executive (under the 2005 Stock and Incentive Compensation Plan.) Filed February 27, 2013, as Exhibit 10-ac to Trustmark’s Annual Report on Form 10-K, incorporated herein by reference. *

10-o		Form of Change in Control Agreement between Trustmark Corporation and certain executive officers. Filed February 7, 2014, as Exhibit 10-ad to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-p		Form of Performance-Based Restricted Stock Agreement for Associate (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed January 8, 2016, as Exhibit 10-p to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-q		Form of Time-Based Restricted Stock Agreement for Associate (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed January 8, 2016, as Exhibit 10-q to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-r		Form of Time-Based Restricted Stock Agreement for Director (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed January 8, 2016, as Exhibit 10-r to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-s		Form of Performance-Based Restricted Stock Agreement for Associate (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed February 15, 2018, as Exhibit 10-s to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-t		Form of Time-Based Restricted Stock Agreement for Associate (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed February 15, 2018, as Exhibit 10-t to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-u		Form of Time-Based Restricted Stock Agreement for Director (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed February 15, 2018, as Exhibit 10-u to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-v		Amendment to Employment Agreement between Trustmark Corporation and Gerard R. Host dated February 15, 2018. Filed February 20, 2018, as Exhibit 10-v to Trustmark’s Form 10-K Annual Report, incorporated herein by reference. *

10-w		Second Amendment to Trustmark Corporation Deferred Compensation Plan (Master Plan Document). Filed May 7, 2018, as Exhibit 10-w to Trustmark’s Form 10-Q Quarterly Report, incorporated herein by reference. *

10-x		First Amendment to Deferred Compensation Plan for Directors (Directors’ Deferred Fee Plan) of Trustmark National Bank. Filed May 7, 2018, as Exhibit 10-x to Trustmark’s Form 10-Q Quarterly Report, incorporated herein by reference. *

10-y		First Amendment to Deferred Compensation Plan for Executives (Executive Deferral Plan-Group 1) of Trustmark National Bank. Filed May 7, 2018, as Exhibit 10-y to Trustmark’s Form 10-Q Quarterly Report, incorporated herein by reference. *

10-z		Second Amendment to Employment Agreement between Trustmark Corporation and Gerard R. Host dated December 10, 2019. Filed December 10, 2019, as Exhibit 10.1 to Trustmark’s Form 8-K Current Report, incorporated herein by reference. *

10-aa		Form of Performance Unit Agreement for Associate (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed February 20, 2020, as exhibit 10-aa to Trustmark’s Form 10-K Annual Report, incorporated herein by reference.*

10-ab		Form of Time-Based Restricted Stock Unit Agreement for Associate (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed February 20, 2020, as exhibit 10-ab to Trustmark’s Form 10-K Annual Report, incorporated herein by reference. *

10-ac		Form of Time-Based Restricted Stock Unit Agreement for Director (under the Amended and Restated Stock and Incentive Compensation Plan.) Filed February 20, 2020, as exhibit 10-ac to Trustmark’s Form 10-K Annual Report, incorporated herein by reference.*

149


10-ad		Employment Agreement between Trustmark Corporation and Gerard R. Host dated October 27, 2020. Filed October 27, 2020 as Exhibit 10.1 to Trustmark’s Form 8-K Current Report, incorporated herein by reference.*

10-ae		Employment Agreement between Trustmark Corporation and Duane A. Dewey dated October 27, 2020. Filed October 27, 2020 as Exhibit 10.2 to Trustmark’s Form 8-K Current Report, incorporated herein by reference.*

10-ag		Amendment No. 2022-1 to the Trustmark Corporation Deferred Compensation Plan. Filed November 3, 2022, as exhibit 10-ag to Trustmark's Form 10-Q Quarterly Report, incorporated herein by reference.*

2110-ah		~~List~~Exhibit 1 Company Contribution in Respect of ~~Subsidiaries~~the Year Ending December 31, 2022 to the Trustmark Corporation Deferred Compensation Plan.*

10-ai		Form of Fully Executed Settlement Agreement.

~~145~~

21		List of Subsidiaries.

23		Consent of Crowe ~~LLP~~LLP.
.
31-a
~~31-a~~		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.
.
31-b
~~31-b~~		Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.
.
32-a
~~32-a~~		Certification by Chief Executive Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
.
32-b
~~32-b~~		Certification by Principal Financial Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
.
101.INS
~~101.INS~~		Inline XBRL Instance Document

101.SCH		Inline XBRL Schema Document

101.CAL		Inline XBRL Calculation Linkbase Document

101.DEF		Inline XBRL Label Linkbase Document

101.LAB		Inline XBRL Presentation Linkbase Document

101.PRE		Inline XBRL Definition Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

* - Denotes management contract.

All other exhibits are omitted, as they are inapplicable or not required by the related instructions.

~~146~~150

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TRUSTMARK CORPORATION

~~147~~151

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:


DATE:	February ~~20, 2020~~16, 2023	BY:	/s/ Adolphus B. Baker
			Adolphus B. Baker, Director

DATE:	February ~~20, 2020~~16, 2023	BY:	/s/ William A. Brown
			William A. Brown, Director

DATE:	February ~~20, 2020~~16, 2023	BY:	/s/ ~~James N. Compton~~Augustus L. Collins
			~~James N. Compton,~~Augustus L. Collins, Director

DATE:	February ~~20, 2020~~16, 2023	BY:	/s/ George T. Chambers, Jr.
			George T. Chambers, Jr., Principal Accounting Officer

DATE:	February 16, 2023	BY:	/s/ Tracy T. Conerly
			Tracy T. Conerly, Director

DATE:	February ~~20, 2020~~16, 2023	BY:	~~/s/ Toni D. Cooley~~
			~~Toni D. Cooley, Director~~

~~DATE:~~	~~February 20, 2020~~	~~BY:~~	/s/ Duane A. Dewey
			Duane A. Dewey, President, Chief Executive Officer and Director

DATE:	February ~~20, 2020~~16, 2023	BY:	/s/ ~~Louis E. Greer~~Marcelo Eduardo
			~~Louis E. Greer, Treasurer, Principal Financial Officer~~Marcelo Eduardo, Director
			~~and Principal Accounting Officer~~
DATE:	February 16, 2023	BY:
~~DATE:~~	~~February 20, 2020~~	~~BY:~~	/s/ J. Clay Hays, Jr., M.D.
			J. Clay Hays, Jr., M.D., Director

DATE:	February ~~20, 2020~~16, 2023	BY:	/s/ Gerard R. Host
			Gerard R. Host, ~~President, Chief Executive Officer~~Chairman and Director
			~~and Director~~
DATE:	February 16, 2023	BY:
~~DATE:~~	~~February 20, 2020~~	~~BY:~~	/s/ Harris V. Morrissette
			Harris V. Morrissette, Director

DATE:	February ~~20, 2020~~16, 2023	BY:	/s/ Thomas C. Owens
			Thomas C. Owens, Treasurer and Principal Financial Officer

DATE:	February 16, 2023	BY:	/s/ Richard H. Puckett
			Richard H. Puckett, Director

DATE:	February ~~20, 2020~~16, 2023	BY:	~~/s/ R. Michael Summerford~~
			~~R. Michael Summerford, Chairman and Director~~

~~DATE:~~	~~February 20, 2020~~	~~BY:~~	~~/s/ Harry M. Walker~~
			~~Harry M. Walker, Director~~

~~DATE:~~	~~February 20, 2020~~	~~BY:~~	~~/s/ Leroy G. Walker, Jr.~~
			~~Leroy G. Walker, Jr., Director~~

~~DATE:~~	~~February 20, 2020~~	~~BY:~~	/s/ William G. Yates III
			William G. Yates III, Director

~~148~~152


Mississippi		64-0471500
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

248 East Capitol Street, Jackson, Mississippi		39201
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		~~(601)~~ (601) 208-5111

	Securities registered pursuant to Section 12(b) of the Act:

Common Stock, no par value	TRMK	Nasdaq Global Select Market
(Title of Class)	(Trading Symbol)	(Name of Exchange on Which Registered)


PART I		PAGE
Item 1.	Business	3
Item 1A.	Risk Factors	1716
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	2627
Item 4.	Mine Safety Disclosures	2827
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2827
Item 6.	Selected Financial Data	3028
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3230
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 8.	Financial Statements and Supplementary Data	67
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~141~~145
Item 9A.	Controls and Procedures	~~141~~145
Item 9B.	Other Information	145
Item 9C.	~~141~~Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	145
PART III
Item 10.	Directors, Executive Officers of the Registrant and Corporate Governance	~~142~~146
Item 11.	Executive Compensation	~~142~~146
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~142~~146
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~142~~146
Item 14.	Principal Accounting Fees and Services	~~142~~146
PART IV
Item 15.	Exhibits, Financial Statement Schedules	~~143~~147
Item 16.	Summary	~~143~~147
SIGNATURES		~~147~~151


State	Deposit Market Share
Alabama		~~Deposit~~1.70~~Market Share~~	%
~~Alabama~~Florida		~~1.66%~~0.16	%
~~Florida~~Mississippi		~~0.17%~~12.88	%
~~Mississippi~~Tennessee		~~13.92%~~0.33	%
~~Tennessee~~Texas		~~0.36%~~0.04
~~Texas~~	~~0.06%~~	%


☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
~~Non-accelerated filer~~	☐	~~Smaller reporting company~~	☐

		Emerging growth company	☐

/s/ ~~Gerard R. Host~~Duane A. Dewey

~~Gerard R. Host~~Duane A. Dewey

President and Chief Executive Officer

February ~~20, 2020~~16, 2023